xli Furt her , t he decline of local governm ent r evenue t ends t o aff ect t he value of t ot al revenue, asset
and operat ing expense. Based on t he above discussion, t his research proposes t he follow ing hypot heses:
H2g: Asset s t urnover rat io AT w ill be inf luenced by inflat ion H2h: Local government original revenue t o t ot al r evenue rat io LORTOR w ill be influenced by
inflat ion H2i: Local governm ent original revenue t o operat ing expense r at io LORPREX w ill be influenced
by inflat ion
2. Size
In t his r esear ch, size is represent ed by t he number of inhabit ant s in a local governm ent . The number of inhabit ant s in a local governm ent or populat ion is an int erest ing t opics discussed in
many t opic of int er est s. In local gover nm ent cont ext , t he number of inhabit ant s holds t w o consequences; favor able or unfavorable. Lar ge number of inhabit ant s w ill bring prosperit y t o a
given local governm ent if t he econom y goes in balance w it h t he number of inhabit ant . The t er m of economic prosperit y, in classic economics t heor y, is t he opt i mum use of employm ent . The
opt imum use of employment , t hus, w ill bring mult iplicat ive eff ect s on local governm ent . Let say if ever yone has a good job; t hey w ill pay more for local t axes, t hus t he Local gover nm ent original
revenue w ill incr ease. On t he cont rar y, t he large number of inhabit ant s could also bring many disadvant ages f or t he local gover nm ent s if t here is no economic prosper it y available. The
unemployment pr oblems as a result of economic slack w ill lead t o many social problems such as crime, et c. Thus, t his phenom ena is not f avorable t o local governm ent since t her e w ill be mor e
budget t o recover t his sit uat ion.
xlii Berne 1992 in Cohen 2008 st at ed t hat many social, polit ical, economic, and polit ical
feat ur es of gover nment appear t o be r elat ed w it h usually m easured in t erms of populat ion. Number of municipal off icers and employees, volume if service offer ed are t he examples of
impact influenced by t he size of populat ion Coh en, 2008. Cohen 2008 also found t hat populat ion as a proxy for size influences t he financial perfor mance.
In accordance w it h profit abilit y rat io, populat ion w ill enhance t he fiscal needs of local governm ent . The rise of fiscal needs t ends t o r educe t he value of budget surplus, cet eris paribus.
The rise of fiscal needs also t ends t o r educe t he value of asset and equit y, cet eris paribus. This ar gum ent aligns w it h Cohen 2008 w ho found t hat populat ion has negat ive influence on
profit abilit y rat io. Thus, it is expect ed t hat populat ion w ill have influence on profit abilit y rat io. Based on t he discussion above, t his research proposes t he f ollow ing hypot hesis:
H3a: Ret urn on equit y ROE w ill be influenced by populat ion H3b: Ret urn on asset s ROA w ill be influenced by populat ion
H3c: Profit margin PM w ill be influenced by populat ion The bigger populat ion t ends t o r educe t he value of cur rent asset , cet eris paribus. The bigger
populat ion also t ends t o enhance t he possibilit y of local governm ent t o suffer cash short age problem, cet eris paribus. The cash short age probl em w ill push t he local government t o employ
current debt . This argum ent aligns w it h Cohen 2008 w ho found t hat populat ion has negat ive influence on current rat io. Thus, it is expect ed t hat populat ion will influence t he curr ent rat io.
Based on t he above discussion, t his research proposes t he follow ing hypot hesis: H3d: Current Rat io CR w ill be influenced by populat ion
xliii The bigger number of populat ion t ends t o enhance t he possibilit y of local governm ent in
using debt as t he f inancing inst rument , cet eris paribus. The bigger number of populat ion also t ends t o r educe t he value of asset and equit y, cet eris paribus. This argument aligns w it h Cohen
2008 w ho found t hat populat ion influences capit al st ruct ur e rat io posit ively. Thus, it is expect ed t hat t he populat ion w ill influence t he capit al st ruct ur e rat io.
Based on t he above discussion, t his research proposes t he follow ing hypot heses: H3e: Debt t o equit y rat io D E w ill be influenced by populat ion
H3f: Long t erm debt t o t ot al asset s rat io L A will be influenced by populat ion In accordance w it h performance rat io, bigger populat ion t ends t o enhance local
governm ent original r evenue, local governm ent t ot al revenue and operat ing expense. On t he cont rar y, bigger populat ion t ends t o r educe t he value of asset if t her e is no rise on local
governm ent r evenue. Cohen 2008 found t hat populat ion influences perfor mance rat io posit ively. Thus, populat ion is expect ed t o influence per formance rat io.
Based on t he above discussion, t his research proposes t he follow ing hypot heses: H3g: Asset s Turnover Rat io AT w ill be influenced by populat ion
H3h: Local gover nm ent original revenue t ot al revenue r at io LORTOR w ill be influenced by populat ion
H3i: Local government original revenue t o operat ing expense Rat io LORPREX w ill be influenced by populat ion
3. Geographical factor
