Abstract
This study aims to examine the relationship between financial performance and community welfare among the Indonesian local governments. Using content analysis, this study measures the financial performance by utilizing financial ratios such as financial independence, financial effectiveness, financial efficiency, and financial growth whilst community welfare is measured through the Human Development Index (HDI). Based on 146 Indonesian local governments, this study shows that the financial performance and the community welfare in Indonesian local governments are not favorable. This study also shows that financial independence, financial effectiveness and financial efficiency of the local governments are positive significantly affect community welfare. However, financial growth of the local governments has a negative and significant effect on community welfare. This study confirms the stakeholder theory, in which the local governments provide benefits to the stakeholders in the form of community welfare although such benefits has yet to reach the community’s expectations.
Highlights
The measurement for this study was adopted from the study conducted by Zulkefli et al (2016b) that consist of training and development (11 items), recruitment and selection (10 items), internal control policy (8 items)
The measurement for corruption risk adapted from OECD and U4 Anti-Corruption Resource Centre (2015) that consists of 10 items
The results show that all the four constructs, which are training and development, recruitment and selection, internal control policies, and corruption risk are all valid measures of their respective constructs based on their parameter estimates and statistical significance (Chow and Chan, 2008)
Summary
Development of country leads to large infrastructure construction projects along with complexities and uncertainties (Guo et al, 2014). As such the risks of corruptions and misconducts are more prevalent. According to the president of International Transparency (TI) Malaysia, training and development, recruitment and selection, and internal control policies are the factors that will lead and improve the corruption risks in Malaysia (Akhbar, 2015). The success of the organization and human management, depends on the effectiveness of human resource practices such as the effectiveness of training and development programs, good recruitment and selection structures and processes and the effectiveness of internal controls
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