Problem Statement Research Objective

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B. Problem Statement

Financial perf ormance measur ement is st ill a rare t opic in public sect or account ing ar ea, especially in Indonesia. Several previous r esear ches for exampl e; Adi 2006; Adi 2007; Set iaji and Adi 2007; Ndadari and Adi 2007; Set yaw an and Adi 2008; and Abdullah and Halim 2003 only invest igat ed t he financial perf or mance by incorporat ing local governm ent original revenue r elat ed rat ios and used sam ples limit ed t o only Java and Bali Island. Thus, it is necessary t o ext end t he financial performance measur ement by adding not only local governm ent original revenue relat ed rat ios but also ot her financial rat ios com monly used in privat e sect or t o get w ider insight s on measur ing financial performance. It is also necessar y t o ext end t he sample t hat not only cover s Java and Bali Island but also all local governm ent s in Indonesia t o get w ider insight s in det er mining f act ors influencing financial perf ormance in nat ional cont ext . Cohen 2008 has developed t he model in invest igat ing fact ors influencing t he f inancial perfor mance in Greek cont ext . This research t ries t o generalize t he findings from Cohen 2008 in Indonesian cont ext . Thus, t he problem st at em ent s in t his research are as follow: 1. Is financial performance influenced by macroeconomic fact ors? 2. Is financial performance influenced by size? 3. Is financial performance influenced by geographical fact ors?

C. Research Objective

The purpose of this research is to test the factors which influence the financial performance in Indonesian local governments. The proposed factors will be macroeconomic factors, size, and geographical factors. Macroeconomic factors are represented by gross regional domestic products xxv GRDP and inflation. Size is represented by the number of population. Geographical factors are represented by island-based location of local governments and administrative status of local governments. Thus, this research will provide empirical evidence on factors which influence financial performances of local governments in Indonesian context.

D. Research Importance