The Effect of Fiscal Decentralization, Balancing Funds, Budget Surplus, and Regional Investments on the Financial Performance of Regency/City ...
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International Journal of Research and Review
Vol. 9; Issue: 4; April 2022
Website: www.ijrrjournal.com
Research Paper E-ISSN: 2349-9788; P-ISSN: 2454-2237
The Effect of Fiscal Decentralization, Balancing
Funds, Budget Surplus, and Regional Investments
on the Financial Performance of Regency/City
Governments in Sumatra
Embun Hayat Utami1, Idhar Yahya1, Abdhy Aulia Adnans1
1
Department of Accounting, Faculty of Economics and Business at Universitas Sumatera Utara, Indonesia
Corresponding Author: Embun Hayat Utami
DOI: https://doi.org/10.52403/ijrr.20220408
ABSTRACT opportunity for regions to increase further
their regional potential, both human
This study aims to examine and analyze the resources, funds, and other regional assets.
effect of fiscal decentralization, balancing funds, Including areas on the island of Sumatra
budget surplus, and regional investment on the
should be more capable of managing their
Financial Performance of Regency/City
respective regions to improve the
Governments throughout Sumatra. This study
uses secondary data obtained from Sumatra's community's welfare. It is reflected in the
Regency/city budgets. The total population of excellent performance and the increased
this study is 154 Regency and cities throughout service to the community because local
Sumatra. Sample identification using Cluster governments are at the forefront of
Random Sampling. Hypothesis testing using developing the regional economy to grow
multiple linear regression analysis methods. every year. In addition, the implementation
This study indicates that only the remaining of regional autonomy must be directly
budget surplus has a negative and significant related to good governance, transparency,
effect on the financial performance of and accountability.
Regency/city governments throughout Sumatra. Regional government development
While other variables, namely fiscal
is constantly faced with the lack of
decentralization, balancing funds, and regional
investment, have a positive and significant optimization of local governments in using
impact on the financial performance of existing sources of income. Local
Regency/city governments throughout Sumatra. governments will become more advanced,
Simultaneously, fiscal decentralization, independent, prosperous, and competitive if
balancing funds, budget surplus, and regional they have adequate funding sources
investment have a positive and significant (Panjaitan, 2019). Of course, apart from
impact on the Financial Performance of having adequate funding sources, the
Regency/City Governments throughout government must also have good funding
Sumatra. sources. The phenomenon that often occurs
local governments experiences budget
Keywords: Fiscal Decentralization, Balancing
deficits indicates a lack of income and
Funds, Budget Surplus, Regional Investment,
Regional Government Financial Performance financing or poor management of the
regional financial resources. Moreover, the
INTRODUCTION government will face new challenges in
The implementation of regional 2020. Indonesia is experiencing a severe
autonomy essentially provides an excellent challenge, namely the Covid-19 pandemic,
International Journal of Research and Review (ijrrjournal.com) 61
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
which is ongoing, affecting economic percent and growth in Regional Original
activities and local government policies in Revenue in 2020, which slowed to 6.64
implementing the Regional Revenue and percent (www.bps.go.id).
Expenditure Budget. It causes the Performance appraisal of a local
community's need for public services to government can be assessed from the
increase, encouraging local governments to surplus/deficit between regional revenues
increase government spending. The and expenditures or the ratio between
realization of Regency/city government revenues and expenditures in the Regional
spending throughout Sumatra during 2019 Revenue and Expenditure Budget (Mead:
rose 8.21 percent, while in 2020, the 2001). The following researchers will
Regency/city government targets spending present the Realization of the
growth to slow down from the 2019 Surplus/Deficit of the Regency/City
realization to 5.71 percent. The slowdown in Regional Revenue and Expenditure Budgets
local government spending was caused by throughout Sumatra:
negative revenue growth in 2020 of 1.08
Table 1. List of Surplus/Deficit Government Budget Realization Report in Regency/Cities in Sumatera (in billion rupiahs)
Source: processed from https://djpk.kemenkeu.go.id/
Based on the tabulated display whether the local government has succeeded
shown in Table 1 above, it is concluded that in carrying out its duties properly or not. In
the level of surplus/deficit for addition, the use of financial ratio analysis
regencies/cities throughout Sumatra to Regional Revenue and Expenditure
fluctuates from year to year. In 2016 only 3 Budget, which provides detailed
out of 8 provinces experienced a deficit of information on the interpretation of regional
37.5% of the total regencies/cities finances, has been verified and validated as
experienced a deficit. Then in 2017-2020, a tool to assess regional financial
there was an increase in regions performance in managing regional finances.
experiencing a deficit. In 2020, as many as Analyzing financial ratios as a
72% of Regency/cities in the provinces of source of financial information is very
Sumatra experienced a deficit, and two useful when comparing estimates from year
provinces that did not experience a deficit to year with several periods to determine
were only able to increase the surplus-value, whether or not regional financial
which was still low. The number of management is more efficient.
surpluses and deficits that fluctuate Regional government financial
indicates that the financial performance of performance is the achievement of an
the Regency/City Governments in the implementation of regional financial
Provinces of Sumatra has not been transactions, which includes regional
outstanding in optimizing revenues and revenues and expenditures using financial
allocating expenditures. indicators set out in presentations or
Local governments that monitor the statutory provisions for one budget period.
running of government, construction, and Performance appraisal is a budget estimate
public services must submit their regional that contains elements of a report on the role
financial accountability reports to assess of local governments in budget appraisal.
International Journal of Research and Review (ijrrjournal.com) 62
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
In Indonesia, the regional financial Mardiasmo (2009) argues that
management index measurement has been measuring financial performance is essential
regulated in PERMENDAGRI No. 19 of in evaluating an organization's ability to
2020. The dimension index of the financial provide better public services. Good
condition of the regional government is seen financial performance is an indicator of the
from 6 (six) indicators. The indicators success of a sector in the economy to
forming the financial condition of local prosper the community and improve
governments are financial independence, services to the community. In line with the
financial flexibility, operational solvency, implementation of regional autonomy in the
short-and-long-term solvency, service form of fiscal decentralization carried out in
solvency. Financial condition is defined in Indonesia based on Law no. 33 of 2004
the context of fiscal health, namely the concerning Central and Regional Financial
ability of local governments to fulfill Balance which regulates financial relations
financial obligations and services to the between the Central Government and
community (Hendrick, 2004). Meanwhile, Regional Governments.
Zafra-Gómez et al. (2009) define the According to Khusaini (2006), fiscal
financial condition in the context of decentralization is the transfer of power
financial health, namely the ability of local over the previously centralized budget or tax
governments to meet debts and provide revenues, the use of which is controlled or
services at a level that is acceptable to the regulated by the state. Therefore, fiscal
community. Wang et al. (2007) distinguish decentralization is an essential factor in
between the financial condition of local implementing regional autonomy. Fiscal
governments and the financial performance decentralization is distributing the budget
of local governments. They argue that from higher levels of government to lower
financial performance is a short-term levels of government to carry out
concept of the difference between local government functions or tasks effectively
government revenues and expenditures. On and get the freedom of decision-making in
the other hand, financial conditions cover the provision of public services by the many
both the short and long term. delegated government authorities. Law
Carmeli (2002) argues that Number 23 of 2014 concerning Regional
performance measurement refers to the Government stipulates that government is
activity of evaluating and reporting data carried out based on decentralization,
related to the quality, efficiency, and deconcentration, and co-administration. So
effectiveness of an organization. This study with the transfer of authority, the provincial
uses an efficiency ratio which is the ratio and municipal governments are formed as
between revenues and expenditures in the autonomous regions.
Regional Revenue and Expenditure Budget, Implementing regional autonomy
such as research conducted by Kumalasari will improve public services and help the
(2015), Nasution (2010), Aziz (2016), regional economy. One way to improve
Simanullang (2013), and Muryawan and public services is to make expenditures for
Sukarsa (2014). The importance of investment purposes realized through capital
measuring efficiency performance in good expenditures (Solikan, 2010). The financial
public sector organizations is due to the lack performance of local governments is the
of realization of local revenue as an ability of local governments to develop and
illustration of the current financial explore sources of regional funds. After
performance of local governments. If the implementing monetary policy, local
work is carried out with low input costs or government financial activity increased due
achieves maximum output, the work is said to increased local revenue. It follows PP No.
to be effective (Hamzah, 2008). determined 12 of 2019, which states that the Regional
(Julitawati, 2012). Revenue And Expenditure Budget is
International Journal of Research and Review (ijrrjournal.com) 63
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
prepared under the needs of government government and regional governments is a
administration and the ability of local fiscal distribution system that is fair,
governments to generate revenue. proportional, democratic, transparent, and
Fiscal decentralization is proxied by efficient. In the framework of funding, the
the ratio of the degree of fiscal implementation of decentralization by
decentralization, namely the comparison taking into account the region's potential,
between the realization of Regional Original conditions, and needs and the amount of
Revenue and the total regional income. funding for the implementation (Law No.
Based on the research results of Sitompul 33/2004).
(2011), Edwnawan (2018), Rahayu, and The Balancing Fund aims to assist
Badrudin (2017), in their research stated the state in providing local government
that the fiscal decentralization policy has a funds in carrying out their authority and
positive influence on the financial aims to reduce the gap in government
performance of the North Sumatra regional funding sources between the center and the
government. Likewise, Harteti & Darwanis's regions and reduce the inter-regional
(2014) research results explain that fiscal government funding gap. The three
decentralization influences regional components of the Balancing Fund are a
financial performance in Regency/cities in system of transfer of funds from the
Aceh province. Meanwhile, in his research, government and form a unified whole. Since
Nasution (2010) shows that fiscal 2001, in line with the implementation of
decentralization does not affect the financial regional autonomy and fiscal
performance of local governments. decentralization, transfers of funds from
Since 2001, in line with the APBN to regions have been allocated in
implementation of regional autonomy and balancing funds. It makes balancing funds
fiscal decentralization, transfers of funds an essential source of funds for local
from APBN to regions have been allocated governments.
in balancing funds. It makes balance funds The following researchers will
an essential source of funds for local present a table of the realization of the
governments. The balancing fund is Balancing Fund in the Regency/City
intended to reduce the fiscal gap between Regional Revenue and Expenditure Budget
the central and local governments. The on the island of Sumatra:
financial balance between the central
Table 2. Realization of Balancing Funds in the Regional Government Budgets of Sumatra for 2016-2020 (in billion rupiahs)
Source: processed from https://djpk.kemenkeu.go.id/
From table 2 above, it can be seen been fluctuations. It shows that the
that the realization of balancing funds in government has not been able to reduce the
regencies/cities throughout Sumatra on dependence on the balance fund
average has increased every year from 2016 contribution.
to 2020, only for regional governments in In Wulandari's research (2019), the
Bengkulu and Lampung provinces have balancing fund as a proxy for financial
International Journal of Research and Review (ijrrjournal.com) 64
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
performance has positive and significant surplus will then be used by the regional
results. Balance funds on the financial government as a source of regional
performance show that the local government financing, as for the description as follows:
is still dependent on the central government. (1). Closing the budget deficit, (2). Paying
The balancing funds provided by the central principal and debt installments, (3).
government are expected to improve the Establishment of reserve funds, (4). Equity
financial performance of local governments. participation, (5). Loans.
Husni (2020) carried out another study that Furthermore, the management of
tested the balancing fund variable on budget surplus by the regional government
regional financial performance (2020), was not entirely used to fulfill the
Andirfa et al. (2016), Khairunisa (2019), instrument. It was only left as remaining
Jalaluddin et al. (2012), which states that cash in the regional treasury account and
balancing funds have a positive effect on became an idle fund that will not have a
regional financial performance. Meanwhile, multiplier effect if not used carefully. For
Ariwibowo's (2015) and Ihsan's (2013) the regional economy (Maulina et al. 2017).
research states that the balancing fund does The remaining budget is obtained
not affect regional financial performance. from three sources: (1). Overestimate of
According to the results of research by income; a realization is greater than the
Silitonga et al. (2021), balance funds have a target for one fiscal year (2). Spending
negative effect on financial performance. efficiency was created because the actual
Another source of funding for the expenditure was smaller than the budget (3).
allocation of capital expenditures is internal Budget surplus is an indicator of efficiency
funds from the budget surplus for the because the budget surplus is formed when
previous fiscal year. According to the there is a net financing surplus. Budget
Minister of Home Affairs Regulation surplus is regional revenue formed from the
(Permendagri) Number 19 of 2020, the remaining cash for the previous fiscal year
Budget surplus is the remaining funds to cover the budget deficit if the realized
obtained from regional budget revenues and revenue is less than the actual expenditure.
expenditures for one period. The Budget Budget surplus is another funding source for
surplus of the previous fiscal year includes allocating capital expenditures to acquire
exceeding Regional Original Revenue various public facilities, namely regional
receipts, exceeding balance fund receipts, revenues sourced from the remaining
exceeding other legitimate regional Budget Surplus (Budget surplus) of the
revenues, exceeding financing receipts, previous fiscal year.
spending savings, obligations to third parties The following researchers will
until the end of the year have not been present a table of the realization of the
resolved, and the remaining funds for budget surplus in the Regency/City
follow-up activities. Regional Revenue And Expenditure Budget
According to Mahmudi (2010), the throughout Sumatra:
remaining budget originating from Budget
Table 3. Realization of Budget Surplus in the Regional Governments of Sumatra for 2016-2020
Source: processed from https://djpk.kemenkeu.go.id/
International Journal of Research and Review (ijrrjournal.com) 65
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
Based on table 3, it can be seen that with capital participation activities.
the realization value of Budget surplus in According to Halim (2012), the inclusion of
regional governments throughout Sumatra local government capital into regional
fluctuates every year. Budget Surplus companies is a form of regional government
(Budget surplus) includes financial factors activity/business to increase regional
that affect financial performance. The high income for the community's welfare.
Budget surplus amount has both positive Another form of investment is a revolving
and negative impacts on the region. It fund. This revolving fund is a loan given to
follows the results of Nabila's research MSMEs to run the wheels of economic
(2017), which shows that the remaining activity in the form of a capital loan.
Budget Surplus has a positive effect on the Revolving funds can help the government
financial performance of local governments. achieve reasonable economic growth (Rafky
Meanwhile, research by Elmiza & Arza & Akhirman, 2014). Higher incomes and
(2020), Rani (2019), and Djuniar & Zuraida better economic growth also lead to better
(2018) suggests that Budget surplus has a financial performance.
negative effect on regional financial Research on local government
performance. investment is still rarely done. According to
A regional development must be the researcher, the investment activities
able to maintain the financial capacity of carried out by the local government show a
each. The goal is to cover the lack of funds good indicator that the source of funding
in the region. Therefore, the central does not always come from income. This
government applies full power to the investment is intended for the construction
regions so that the entire region increases of public facilities and infrastructure.
financial efficiency in implementing According to Andardini (2019), the
development formation (Sary, 2012). investment will increase economic growth
Meanwhile, the limited sources of income so that the increasing economic growth will
make regions have to be more thoughtful in reflect the good financial performance of
finding other sources of income besides local governments. Previous research on
existing sources of income. In addition to Regional Investment was conducted by
the sources of income above, local Sartika et al. (2019), Amri (2015), and
governments can also increase income Andardini (2019), which revealed that
through investment activities. regional investment has a positive and
Based on the Ministry of Home significant influence on regional financial
Affairs No. 52 of 2012 states that local performance. However, it is different from
government investment is the long-term the research conducted by Nurhayati (2015),
placement of funds and assets belonging to which proxies local government investment
the region aimed at investing in the on economic growth, which produces a
purchase of securities and direct investment, negative and insignificant effect.
which can return the principal value plus The existence of a research gap in
economic, social, or other benefits in the the form of inconsistencies in some of the
long-term specific time. components above as well as the
Local government investment phenomena that occur in the financial
activities can include equity participation, performance of Regency/City Governments
revolving funds, and short-term investments throughout Sumatra makes researchers
such as deposits, state debt securities, and interested in reexamining the factors that
Bank Indonesia certificates. Investment, affect financial performance, in this case,
especially short-term investment, is an are Fiscal Decentralization, Balance Funds,
activity to take advantage of idle cash. This Budget Surplus (Budget surplus), and
idle cash is used for investment to increase Regional Investment. Based on the
income to optimize existing cash, likewise description above, the researcher is
International Journal of Research and Review (ijrrjournal.com) 66
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
interested in conducting research with "The RESEARCH METHODS
Effect of Fiscal Decentralization, Balance This type of research is a type of
Funds, Budget Surplus, and Regional quantitative research. According to Daulay
Investment on the Financial Performance of (2010), quantitative research emphasizes
Regency/City Governments in Sumatra." testing theories by measuring research
variables with numbers and analyzing data
Framework with statistical procedures. This research is
Following the description of the associative research with a causal
background of the problem, literature relationship. According to Sugiyono (2019),
review, and previous research, a conceptual a causal relationship is. This study aims to
research framework is prepared as follows: analyze. This study examines the effect of
fiscal decentralization, balance funds,
budget surplus, and regional investment as
independent variables on financial
performance as dependent variables in
Regency/City Governments throughout
Sumatra.
The type of data used in this
research is secondary data obtained from the
report of the Regency/City Regional
Revenue and Expenditure Budget in
Sumatra, the website of the Directorate
Figure 1. Conceptual Framework
General of Fiscal Balance
(https://djpk.kemenkeu.go.id), from the
H1: Fiscal decentralization has a positive
library of the Central Statistics Agency of
and significant effect on the financial
North Sumatra, which is located at Jl.
performance of local governments in
Dormitory No. 179 Medan and also through
Regency/City Governments throughout
the website of the Central Statistics Agency
Sumatra
of each Regional Government. This study
H2: Balance funds have a positive and
uses the Eviews9 application to process the
significant effect on the financial
data.
performance of local governments in
The population in this study were all
Regency/City Governments throughout
154 Regency/city local governments
Sumatra
throughout Sumatra. The sampling
H3: Budget surplus has a positive and
technique used in this study was cluster
significant effect on the financial
random sampling. According to Sugiyono
performance of local governments in
(2019), Cluster Random Sampling is a
Regency/City Governments throughout
regional sampling technique used to
Sumatra
determine the sample if the object to be
H4: Regional investment has a positive and
studied or the data source is comprehensive,
significant effect on the financial
for example, the population of a country,
performance of local governments in
province, or Regency. This research used
Regency/City Governments throughout
the descriptive analysis technique with the
Sumatra
multiple linear regression method.
H5: Fiscal decentralization, balance funds,
budget surplus, and regional investment
RESULT AND DISCUSSION
have a positive and significant simultaneous
Classic Assumption Test
effect on the financial performance of local
Normality Test
governments in Regency/City Governments
The normality test for the residuals
throughout Sumatra.
in this study used the Jarque-Bera test (J-B)
International Journal of Research and Review (ijrrjournal.com) 67
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
with a significance level of = 0.05. The Autocorrelation Test
basis for making decisions is to look at the Assumptions regarding the
probability numbers from the J-B statistics, independence of the residuals (non-
with the following conditions: autocorrelation) can be tested using the
a. If the probability value of P 0.05, then Durbin-Watson test. The statistical value of
the assumption of normality is met. the Durbin Watson test ranged between 0
b. If the probability value of P 0.05, then and 4. Statistical values of the Durbin-
the assumption of normality is not met. Watson test smaller than one or greater than
3 indicated an autocorrelation.
Table 5. Autocorrelation Test (Durbin-Watson Test)
Log-Likelihood -827.4461 Hannan-Quinn criter. 5.597560
Durbin-Watson stat 2.020432
Source: Eviews 9 Software Results
Based on Table 5, the value of the
Durbin-Watson statistic is 2.020432. Since
the Durbin-Watson statistical value lies
between 1 and 3, i.e., 1 < 2.381908 < 3, the
non-autocorrelation assumption is fulfilled.
Source: Eviews 9 Software Results It can be concluded that there is no high
Figure 2. Normality Test Result
autocorrelation symptom in the residuals.
Based on Figure 2, it is known that
the probability value of the J-B statistic is Heteroscedasticity Test
0.208405. Because the probability value of The Breusch-Pagan-Godfrey test can
p, 0.208405, is greater than the significance be used to test whether there is
level, which is 0.05. It means that the heteroscedasticity or not. Following are the
assumption of normality is met. results of heteroscedasticity testing using
the Breusch-Pagan-Godfrey test.
Multicollinearity Test Table 6. Heteroscedasticity Test with Breusch-Pagan-Godfrey
Test
In this study, the symptoms of F-statistic 2.261895 Prob. F(4,295) 0.0626
multicollinearity can be seen from the VIF Obs*R-squared 8.927136 Prob. Chi-Square (4) 0.0629
value. Ghozali (2013) states that if the VIF Source: Eviews 9 Software Results
value is > 10, this indicates Berdasarkan hasil uji Breusch-
multicollinearity. The results of the Pagan-Godfrey Regional Original Revenuea
multicollinearity test are presented in Table Tabel 5.6 diketahui nilai Prob. Regional
4. Original Revenuea baris Chi-Square 0.0629
Table 4. Multicollinearity Test Results > 0,05. Dapat disimpulkan tidak terjadi
Variable VIF
X1 1.101163
heterokesdastisitas.
X2 1.073435
X3 1.009203 Determination of the Estimation Model
X4 1.029057
Source: Eviews 9 Software Results Chow Test
The Chow test determines whether
Based on Table 4, the results of the the estimation model is Common Effect
multicollinearity test, it can be concluded Model (CEM) or Fixed Effect Model (FEM)
that there are no symptoms of in forming a regression model. The
multicollinearity between the independent hypothesis being tested is as follows.
variables. It is because the VIF value < 10 a. Ho: Ftable < Fstat, then the Fixed Effect
(Ghozali, 2013). It proves that there is no Model (FEM) is valid.
correlation between variables. b. H1: Ftable > Fstat, the Common Effect
Model (CEM) is valid.
International Journal of Research and Review (ijrrjournal.com) 68
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
The following are the results based following results are based on the Langrage
on the Chow test using Eviews9. Multiplier test using EViews 9.
Table 7. Chow Test Result Table 8. Lagrange Multiplier Test Result
Effects Test Statistic d.f. Prob. Test Hypothesis
Cross-section F 0.802933 (49,246) 0.8203 Cross-section Time Both
Cross-section Chi-square 44.508900 49 0.6556 Breusch-Pagan 5.508824 0.260992 5.769816
Source: Eviews 9 Software Results (0.0189) (0.6094) (0.0163)
Source: Eviews 9 Software Results
The decision-making rules for the
hypothesis are as follows: The decision-making rules for the
a. If the probability value of Chi-square hypothesis are as follows:
cross-section
and H1 is accepted. 0.05, then the common effect model
b. If the Chi-square cross-section (CEM) is valid
probability value is > 0.05, H1 is b. H1: Both Breusch-Pagan value < 0.05,
accepted, and H0 is rejected. then the random effect model (REM) is
Based on the results of the Chow test valid
in Table 7, it is known that the probability Based on the results of the Langrage
value is 0.6556. Because the probability Multiplier in Table 8, it is known that the
value is 0.6556 > 0.05, the estimation model value of both Breusch-pagan is 0.0163.
used is the common effect model (CEM). If Because the value of both Breusch-Pagan is
the CEM Model is selected, proceed to the 0.0163 < 0.05, the estimation model used is
Lagrange Multiplier Test. the random effect model (REM).
Lagrange Test Hypothesis Test
In determining whether the The coefficient of determination
estimation model of the random effect analysis will be carried out in testing the
model (REM) or the common effect model hypothesis, simultaneous effect testing (F
(CEM) informs the regression model, the test), and partial effect testing (t-test).
Langrage Multiplier test is used. The Statistical values of the coefficient of
determination, F test, and t-test are
presented in Table 9.
Table 9. Hypothesis Test Results
Variable Coefficient Std. Error t-Statistic Prob.
C 98.20195 0.806911 121.7011 0.0000
X1 0.167909 0.028534 2.379964 0.0179
X2 0.051884 0.000460 4.095015 0.0001
X3 -0.010143 0.003208 -3.161959 0.0017
X4 0.182663 0.022760 3.631950 0.0003
R-squared 0.422748 Mean dependent var 101.2044
Adjusted R-squared 0.166599 S.D. dependent var 4.262531
S.E. of regression 3.891300 Sum squared resid 4466.953
F-statistic 15.94268 Durbin-Watson stat 2.065401
Prob(F-statistic) 0.000000
Source: Eviews 9 Software Results
Panel Data Regression Equation and Decentralization (X1), Balancing Funds
Partial Effect Significance Test (t Test) (X2), and Regional Investment (X4) has a
Based on Table 9, the panel data regression positive and significant effect on Regional
equation is obtained as follows: Government Financial Performance
Y = 98.20195 + 0.167909 X1 + 0.051884 partially. Meanwhile, Budget surplus (X3)
X2 – 0.010143 X3 + 0.182663 X4 + e has a negative and significant effect on
Regional Government Financial
Based on Table 9 and the above Performance.
equation, it can be concluded that Fiscal
International Journal of Research and Review (ijrrjournal.com) 69
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
Coefficient of Determination Analysis 5. Fiscal decentralization, Balance Funds,
Analysis of the coefficient of Budget Surplus (Budget surplus), and
determination is used to see the effect of Regional Investment simultaneously
other variables in explaining the dependent significantly affect the Financial
variable. Other variables referred to are Performance of Regency/City
variables outside of Fiscal Decentralization, Governments in Sumatra by 42%. The
Balance Fund, Budget surplus, and Regional remaining 58% is influenced by the
Investment. Based on Table 9, it is known following factors: another factor.
that the coefficient of determination (R-
squared) is R2 = 0.42. This value can be LIMITATIONS OF THE RESEARCH
interpreted as fiscal decentralization, The limitations in this study are as
balance funds, budget surplus, and regional follows:
investment, simultaneously or jointly 1. This research was only conducted in
affecting Financial Performance by 42%. regencies/cities throughout Sumatra.
Other factors influence the remaining 58%. However, only 50 regencies/cities were
the samples of this research, so it cannot
Simultaneous Effect Significance Test (F explain and describe the condition of the
Test) financial performance of all
The test is used to test the effect of regencies/cities in Indonesia.
the independent variables together or 2. This study only explains 48% of the
simultaneously on the dependent variables. factors that affect the Financial
Based on Table 9, it is known the value of Performance of Regency/City
Prob. (F-statistics), which is 0.00000 < 0.05, Governments in Sumatra. Fifty-eight
it can be concluded that all independent (58%) other factors could not be
variables, namely Fiscal Decentralization, explained in this study.
Balance Fund, budget surplus, and Regional
Investment, simultaneously have a SUGGESTION
significant effect on the Financial Based on the conclusions above, the
Performance variable. suggestion from researchers for local
governments is to be more careful in
CONCLUSION managing sources from the center to
Based on the results of research and productive things and can increase
discussion, the following conclusions can be development evenly. Other suggestions are:
drawn: 1. Further researchers are advised to add
1. Fiscal decentralization has a positive other independent variables that
and significant impact on the Financial influence the financial performance of
Performance of Regency/City local governments to increase the
Governments throughout Sumatra. variety of research and also increase the
2. The Balanced Fund has a positive and area of research by taking samples from
significant effect on the Financial other Regency/cities in order to compare
Performance of Regency/City whether the results of this study apply to
Governments throughout Sumatra. Regency/cities outside Sumatra.
3. Budget Surplus has a negative and 2. Local governments should be more
insignificant effect on the Financial careful and thorough in utilizing the
Performance of Regency/City central government's funds and those
Governments throughout Sumatra. originating from the regions themselves.
4. Regional Investment has a positive and Moreover, to allocate regional
significant impact on the Financial investment funds that can be a source of
Performance of Regency/City income for the region. If all these uses
Governments throughout Sumatra. are fulfilled, it will improve the regional
International Journal of Research and Review (ijrrjournal.com) 70
Vol. 9; Issue: 4; April 2022Embun Hayat Utami et.al. The effect of fiscal decentralization, balancing funds, budget surplus, and regional
investments on the financial performance of regency/city governments in Sumatra.
economy, especially for improving the Belanja Modal Dan Sisa Lebih Pembiayaan
financial performance of local Anggaran (Budget surplus) Terhadap
governments. Kinerja Pemerintah Daerah
Kabupaten/Kota Provinsi Sumatera
Acknowledgement: None Selatan. Jurnal Fakultas Ekonomi dan Bisnis
Universitas Muhammadiyah Palembang,
Palembang, 3 (2), 445-455
Conflict of Interest: None 9. Ednawan, Rizki (2018). Pengaruh
Desentralisasi Fiskal, Pendapatan Asli
Source of Funding: None Daerah, Dana Perimbangan Dan Ukuran
Legislatif Terhadap Kinerja Keuangan
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