New public management and corruption: Empirical evidence of local governments in Indonesia

Abstract

This study is relevant because it examines the determinants of corruption in local governments that have a negative impact on the success of sustainable development. This study aims to examine the effect of New Public Management (NPM), as measured by fiscal decentralization, financial reporting quality and independent audits, on the level of corruption. The sample consisted of 433 local governments in Indonesia based on data from 2011–2017. PLS-SEM was used as a data analysis technique. The results test shows that fiscal decentralization positively affects corruption with a path coefficient of 0.19 and a p-value of 0.004. The quality of financial reporting has a negative effect on the level of corruption with a coefficient of –0.26 and a p-value < 0.001. Hypotheses testing results also show that audit finding positively affects corruption with a coefficient of 0.10 and a p-value < 0.10. On the other hand, follow-up audit results have no significant effect on corruption with a p-value > 0.10. This study concludes that the NPM mechanism in the form of fiscal decentralization positively affects corruption. These results imply that fiscal decentralization needs to be balanced with good governance, among others, by increasing the quality of financial reports and independent audits.