Factors influencing the financial performance in Indonesian local governments OKI KUNTARYANTO2010

iv

FACTORS INFLUENCING THE FINANCIAL PERFORMANCE IN

INDONESIAN LOCAL GOVERNMENTS

THESIS

A thesis submitted in partial fulfillment of the

requirement for the degree of Magister Sains

By

OKI KUNTARYANTO

NIM: S4307088

FAKULTAS EKONOMI

UNIVERSITAS SEBELAS MARET

SURAKARTA

2010

v

FACTORS INFLUENCING THE FINANCIAL PERFORMANCE IN INDONESIAN

LOCAL GOVERNMENT

By:

OKI KUNTARYANTO

NIM: S4307088

Has been approved by supervisors

On:

Supervisor Co supervisor

Prof. Dr. Bambang Sutopo, M.Com. Ak Doddy Setiawan, S.E. M.Si., IMRI., Ak

NIP. 19520610 198803 1 002 NIP. 19750218 20012 1 001

Acknowledged by

Head of Master of Accounting Program

Dr. Bandi, M.Si., Ak

NIP. 19641120 199103 1 002

vi

FACTORS INFLUENCING THE FINANCIAL PERFORMANCE IN INDONESIAN

LOCAL GOVERNMENT

By:

OKI KUNTARYANTO

NIM: S4307088

Has been approved by examiners

On,

Chairman

: Drs. Djoko Suhardjanto, M.Com (Hons), Ph.D, Ak

Vice

: Dra. Y. Anni Aryani, M.Proff.Acc, Ph.D., Ak

Member

: Prof. Dr. Bambang Sutopo, M.Com., Ak

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STATEMENT

Name

: Oki Kuntaryanto

NIM

: S4307088

I declared truthfully that this thesis entitled Factors Influencing Financial

Performance in Indonesian Local Government is originally made by the researcher. It is

not plagiarism nor made by others. This things related to other people’s works are written

in quotation and included in the bibliography.

If it is later discovered and proven that this statement is not true, the researcher

willingly accept any penalty from the Master of Accounting Program, Fakultas Ekonomi,

Universitas Sebelas Maret.

Surakarta, January 2010

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ACKNOWLEDGEMENT

Assalamu’alaikum Wr. Wb.

Alhamdulilah, researcher thanks to the presence of Allah SWT for the overflows of

blesses, grants, and guides so that Researcher able to accomplish this thesis well. This

thesis is compiled to equip the duties and fulfill the preconditions to achieve the Magister

Sains Degree in Faculty of Economics, Universitas Sebelas Maret.

Researcher realizes that during the thesis accomplishment process, there are many

helps from other parties. Herewith, Researcher says many thanks to various following

parties:

1.

Minister of Education of Indonesian Republic, for the willingness to give grants in

form of scholarship “Beasiswa Unggulan Diknas”, in order to complete the study in

Master of Accounting Study Program, Faculty of Economics, Universitas Sebelas

Maret.

2.

Prof. Dr. Bambang Sutopo, M.Com. Ak, as The Dean of Economics Faculty,

Universitas Sebelas Maret and as the thesis supervisor for helps and guidance.

3.

Dr. Bandi, M.Si. Ak, as The Head of Master of Accounting Program Economics

Faculty, Universitas Sebelas Maret.

4.

Mr. Doddy Setiawan as the co-supervisor for helps and guidance.

5.

Mr. Djoko Suhardjanto, M.Com (Hons), Ph.D for your kindness

6.

All lecturers in MAKSI, for their kindness.

7.

My Father and Mother, parents in law for keeping me motivated.

8.

My wife and Arkaan for their love.

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Researcher realizes that this works is a long way off from perfection. Hence,

researcher expects the constructive suggestions and criticism. Finally, researcher feels very

sorry if there are mistakes and drawbacks in this thesis.

Wassalamu’alaikum Wr. Wb

Surakarta, January 2010

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TABLE OF CONTENT

Page

APPROVAL ………

ii

DEDICATION ……… iv

MOTTO ……… v

STATEMENT………..………. vi

ACKNOWLEDGEMENT……….. vii

TABLE OF CONTENT……… ix

LIST OF TABLE………..

xii

LIST OF FIGURE……… . xiii

LIST OF APPENDIX……… xiv

ABSTRACT……….. xv

CHAPTER I. INTRODUCTION………. 1

A.

Research background………. 1

B.

Problem statement……….. 8

C.

Research objective……….. 9

D.

Research importance………... 9

E.

Expected benefits……… 9

F.

Chapter Organization……….. 10

CHAPTER II. LITERATURE REVIEW AND HYPOTHESIS

DEVELOPMENT……… 12

A.

The public sector accounting reform in Indonesia……….. 12

xi

1.

Financial ratio selection………. 17

C.

Exogenous factor selection……… 21

1.

Macroeconomic factor………. 22

2.

Size……….. 31

3.

Geographical factor………. 35

D.

Theoretical framework……….. 42

CHAPTER III. RESEARCH METHOD……… 43

A.

Data collection……….. 43

B.

Population and sample……….. 43

C.

Analysis technique……… 44

D.

Variable identification……….. 46

E.

Operational definition………... 46

CHAPTER IV. DATA ANALYSIS AND DISCUSSION………... 43

A.

Data description……… 49

B.

Data analysis………. 56

1.

Year 2006……… 56

2.

Year 2007……… 60

3.

Two-year analysis……… 64

C.

Discussion………. 68

CHAPTER V. CONCLUSION AND SUGGESTION

A.

Conclusion………. 76

B.

Suggestion ……… 72

1.

Suggestion for policy maker

xii

xiii

LIST OF TABLE

Page

Table 1

Ratio calculation………..

47

Table 2

Data description for 2006………

49

Table 3

Data description for 2007……… 50

Table 4

Descriptive statistics for 2006………. 51

Table 5

Descriptive statistics for 2007……….

54

Table 6

OLS assumption for 2006………...

56

Table 7

Collinearity test for 2006……….

57

Table 8

Hypothesis test result for 2006………

58

Table 9

OLS assumption for 2007………...

61

Table 10

Collinearity test for 2007……….

62

Table 11

Hypothesis test result for 2007………

63

Table 12

Panel analysis assumption……… 65

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LIST OF FIGURE

Page

Figure 1

Theoretical framework……….

42

xv

LIST OF APPENDIX

Page

Appendix I.

Sample of local government for 2006……… 79

Appendix II. Sample of local government for 2007……… 80

Appendix III. Data Analysis for 2006………... 81

Appendix IV. Data Analysis for 2007……… 90

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ABSTRACT

Oki Kuntaryanto

NIM: S4307088

FACTORS INFLUENCING FINANCIAL PERFORMANCE IN INDONESIAN

LOCAL GOVERNMENTS

The use of financial ratios to measure financial performance is a common practice in

private sector. However, this research uses those ratios and applies them in public sector.

This research is a modified replication from Cohen (2008) which investigates factors

influencing financial performance in Indonesian local governments. Financial

performance is represented by financial ratios comprising profitability ratios, short term

solvency ratio, capital structure ratios and performance ratios. The conjectured factors

which influence financial performance are macroeconomic factors represented by GRDP

and inflation, size represented by population, and geographical factors represented by

administrative status of local governments and island-based location of local governments.

This research employs audited financial reports from 281 local governments for

2006 and 255 local governments for 2007. The financial reports included in data analysis

are those which do not have adverse and disclaimer opinions. Ordinary least squares

regression technique is employed for testing the hypothesis for cross-sectional data. In

addition, panel analysis is employed to test the time change effect.

This research finds that macroeconomic factors represented by GRDP and inflation

influence all financial ratios except capital structure ratio. Size represented by population

influences all financial ratios except performance ratios. Geographical factors represented

by administrative status of local government influence all financial ratios. However,

geographical factors represented by island-based location of local government does not

influence debt related ratios.

Keywords: Financial performance, Financial ratios, Local governments, Indonesia,

Macroeconomic factors, Size, Geographical factors

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Oki Kuntaryanto

NIM: S4307088

FAKTOR-FAKTOR YANG MEMPENGARUHI KINERJA KEUANGAN

PEMERINTAH DAERAH DI INDONESIA

Penggunaan rasio keuangan untuk mengukur kinerja keuangan umum digunakan

oleh sektor privat. Namun, penelitian ini menerapkan rasio keuangan tersebut pada sektor

publik. Penelitian ini merupakan replikasi dari Cohen (2008) yang meneliti faktor-faktor

yang mempengaruhi kinerja keuangan pemerintah daerah di Indonesia. Kinerja keuangan

direpresentasikan oleh rasio-rasio keuangan yang terdiri atas rasio profitabilitas, rasio

solvensi jangka pendek, rasio struktur modal, dan rasio kinerja. Faktor-faktor yang diduga

berpengaruh terhadap kinerja keuangan meliputi faktor makroekonomi yang

direpresentasikan oleh PDRB dan inflasi, faktor ukuran yang direpresentasikan oleh

jumlah penduduk, serta faktor geografis yang direpresentasikan oleh status administratif

pemerintah daerah dan lokasi pemerintah daerah berdasarkan pulau.

Penelitian ini menggunakan laporan keuangan pemerintah daerah auditan yang

terdiri atas 281 pemerintah daerah pada tahun 2006 dan 255 pemerintah daerah pada

tahun 2007. Laporan keuangan yang dianggap memenuhi kriteria sampel adalah laporan

keuangan yang tidak diberi opini tidak wajar dan disclaimer oleh auditor. Pengujian

hipotesis menggunakan teknik statistik ordinary least squares (OLS) untuk data

cross-sectional. Sebagai tambahan, analisis panel digunakan untuk menguji model yang

melibatkan pengaruh waktu (time-series effect).

Penelitian ini menemukan bahwa variabel makroekonomi berpengaruh terhadap

semua rasio keuangan kecuali rasio struktur modal. Faktor ukuran yang direpresentasikan

oleh jumlah penduduk berpengaruh terhadap semua rasio keuangan kecuali rasio kinerja.

Faktor geografis yang direpresentasikan oleh status administrative pemerintah daerah

berpengaruh terhadap semua rasio keuangan. Akan tetapi, faktor geografis yang

direpresentasikan oleh lokasi pemerintah daerah berbasis pulau tidak berpengaruh

terhadap rasio keuangan terkait hutang.

Kata Kunci: Kinerja keuangan, Rasio keuangan, Pemerintah daerah, Indonesia, Faktor

makroekonomi, Ukuran, Faktor geografis.

Financial performance, Financial ratios, Local governments, Indonesia, Macroeconomic

factors, Size, Geographical factors

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CHAPTER I

INTRODUCTION

A. Research Background

The Governm ent Rul e Number 24 Year 2005 r equir es t he government ent it ies pr epar e audit able financial st at em ent s in order t o increase t ransparency and account abilit y. The rule also requires t hat t he f inancial st at ement s must implement t he cash t ow ard accrual basis w hich means t hat revenue, expendit ur e and f inancing must be recognized using cash basis and asset , liabilit y, and equit y must be recognized using accrual basis.

The implem ent at ion of accrual basis in public sect or ent it ies in Indonesia is not a revolut ion. It t akes a long t im e span for t his count r y t o implem ent it . The eff or t on r eforming public sect or account ing had been begun in 1980 conduct ed by M inist ry of Finance from init iat ing a modernizat ion of governm ent account ing syst em st udy unt il t he issuance of Gover nm ent Rule Number 24 Year 2005 about Governm ent al Account ing St andard (Soegijant o and Hoesada, 2005).

The decent ralizat ion era enabl es t he local gover nment s t o w iden t heir aut horit ies in est ablishing t he governm ent al af fairs. Aut horit ies t o est ablish t he governm ent al affairs are expanded t o all aut horit ies except for five aut horit ies t hat r emain t o be t he aut horit ies of cent ral governm ent . The five aut horit ies ar e def ense affair, t he securit y affair, t he monet ar y affair t hat belongs t o cent ral bank, t he religion af fair and int ernat ional affair.

The decent ralizat ion era also brings t he financial consequences t o local governm ent Law Number 33 Year 2005 about Financial Count er Balance bet w een Cent ral and Local Governm ent st at es t hat t he cent ral governm ent gives aut horit y t o local government s in funding t he governm ent al affairs by generat ing local governm ent ’s revenue. Nonet heless, local governm ent

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revenue it self does not st and alone in composing t he w hole local government r evenue. According t o The Law , local government r evenue is composed f rom t hr ee main sources; local governm ent original revenue, count er balance fund and ot her legal revenues. In financial t erms, decent ralizat ion concept s r equire t he local gover nment be more independent from t he dependence on cent ral government subsidies. M ardiasmo (2002) st at es t hat befor e t he implement at ion of regional aut onomy, t her e w as a big expect at ion from local government s t o develop t heir ow n r egion based on t he original capabilit ies and w ills, but in f act , t he local governm ent s ar e t rapped in bigger dependence on cent ral governm ent s subsidies. Set iaji and Adi (2007) find t hat t he share of local government original revenue t o r egional expendit ur e during aut onom y era show s no improvement because t he local governm ent s st ill have st r ong dependence on cent ral government subsidy.

The t ranspar ency and account abilit y mat t ers also becom e int er est ing t opic as t he pow ers of local government t o manage t heir fund are bigger t han t he era befor e aut onomy. M ardiasmo (2003) st at es t hat account abilit y pat t ern befor e t he issuance of St at e Finance Law package w as a horizont al pat t ern in nat ur e. It means t hat t he local governm ent execut ive is responsible for bot h local parliament and t he w hole soci et y. How ever, M ardiasmo (2003) finds t hat t he execut ive is mor e r esponsible f or local parliament rat her t han t he societ y as a w hole. The absent of f inancial report ing st andards make t he problem on t ranspar ency aspect . This happens because it limit s t he independent t hird part y t o conduct audit .

The account ing r ef or m also impact s on local government cont ext in accordance w it h account abilit y and t ranspar ency problems. The Government Rule Number 24 Year 2005 about Government al Account ing St andard r equires all local governm ent s be account able by r eport ing t he resour ces managem ent and policy execut ions t hat ent rust ed t o r eport ing ent it y t o achieve

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t he predet ermined obj ect ives periodically. The Rule also r equires all local governm ent s be t ransparent by r eleasing open and honest financial informat ion t o t he soci et y based on a judgm ent t hat t he societ y has a right t o know compr ehensively about governm ent ’ s responsibilit y in managing resources and t he obedi ence t o t he posit ive law .

How ever, t her e ar e ot her pr oblems besides t he t ransparency and account abilit y problem. One of t hem is t he perfor mance aspect . The perfor m ance aspect is m ent ioned in Act Number 15 Year 2004 about St at e Finance Audit . The dimensions of performance measur ement s ar e econom y, effect iveness, and efficiency.

Int ernat ional experiences show t hat t he perfor mance measur em ent is an import ant t hing t o do along w it h t he implem ent at ion of accrual basis account ing. Gr eece, for example, in t he M unicipal and Communal Code of 2006 in several inst ances ment ioned t hat t he f inancial perfor mance assessm ent of local government s w ould be mat erialized via financial rat io analysis t hat is expect ed t o be used for benchmarking, t arget set t ing, ident ificat ion of best pract ices and ult imat ely direct ion of subsidies and grant s on t he basis of rat ional and just if ied argum ent s (Cohen, 2008).

Ther e ar e several researches r elat e t o financial performance conduct ed in Indonesia (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). How ever, t hose researches only invest igat e about f inancial perfor mance m easur ed by local governm ent original revenue. M or eover, t hose previous researches use sampl e only for local government s l ocat ed in Java and Bali Island not in t he nat ional cont ext .

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Adi (2007) f inds t hat f inancial performance index during regional aut onomy is posit ively different from pr e aut onomy era. Adi (2007) also f inds t hat t he economic grow t h has st rong influence t o t he financial perfor mance. Set iaji and Adi (2007) f ind t hat t he port ion of Local governm ent original revenue t o regional expendit ur e during aut onom y era has no diff erence f rom pre aut onom y era but t he grow t h of local governm ent original revenue during aut onom y has posit ive differ ence from pr e aut onomy era. Set yaw an and Adi (2008) find t hat f iscal st ress posit ively influences t he grow t h of capit al expendit ure and fiscal st r ess during t he aut onom y er a has st ronger ef f ect on t he gr ow t h of local gover nm ent original revenue and capit al expendit ur e rat her t han t he impact of fiscal st ress before aut onom y era.

This research t ries t o ext end pr evious r esearches (f or exam ple; Adi 2006; Adi 2007; Set iaji and Adi 2007; Ndadari and Adi 2007; Set yaw an and Adi 2008; and Abdullah and Halim 2003) w hich invest igat e t he financial perfor mance m easurem ent by implem ent ing financial rat ios developed by Cohen (2008) int o Indonesian local gover nm ent s. This research is diff erent f rom similar researches conduct ed in Indonesia in several w ays. The f irst diff erence is t he w ider use of financial rat ios as a t ool t o measur e financial perfor mance. Unlike t he pr evious researches (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) t hat used local gover nm ent or iginal revenue relat ed rat ios t o measur e t he f inancial perfor mance of local governm ent , t his research uses financial rat ios t hat com monly used in privat e sect or. The second diff er ence is t he used sample. Previous r esearches (for example; Adi 2006; Adi 2007; Set iaji and Adi 2007; Ndadari and Adi 2007; Set yaw an and Adi 2008; and Abdullah and Halim 2003) employed sam ple only in Java and Bali. On t he ot her hand, t his research uses t he sample from all local government s in Indonesia.

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This research is also a modified replicat ion f rom Cohen (2008). The r eason t o r eplicat e Cohen (2008) is t o invest igat e fact ors influencing financial perf ormance in Indonesian cont ext in a mor e compr ehensive manner compar ed t o pr evious researches in Indonesia w hich only invest igat e t he financial performance by emphasizing on t he local governm ent original revenue and relat ed variables influencing it (for example; Adi 2006; Adi 2007; Set iaji and Adi 2007; Ndadar i and Adi 2007; Set yaw an and Adi 2008; and Abdullah and Halim 2003). The pr evious researches also use local governm ent s in Java and Bali as t heir samples. Thus, t his r esear ch uses not only local governm ent original relat ed rat ios but also ot her financial rat ios such as profit abil it y rat ios, short -t erm solvency rat io, capit al st ruct ure rat io and performance rat ios t o measur e financial performance. This research also uses mor e samples t hat not only cover Java and Bali but also all local governm ent s in Indonesia. Thus, t his research invest igat es fact ors influencing financial performance in nat ional cont ext .

How ever, t he r esearch gap exist s in t his resear ch r esides on fact ors t hat influence t he financial performance. The gap com es from dif fer ent background, dat a availabilit y and st at ist ical issues. Cohen (2008) incorporat es several variables w her e t hose variables are not suit able w it h t he circumst ances exist in Indonesia such as t ourism, price of propert y and capit al. Tourism is not suit able w it h t he sit uat ion in Indonesia because Gr eece has law w hich r ules specific areas as t ourism zones t hat enjoy t ax and ot her privileges. M eanw hile, Indonesia does not have t he similar Law like Greece has. This sit uat ion w ill bring consequence in dat a collect ion. Price of proper t y also w ill make a problem in dat a collect ion because Indonesian St at ist ic Bur eau (BPS) does not pr ovide such dat a. Capit al w hich m easur ed by cat egorizing t he st at us of local governm ent int o capit al of a province or non-capit al of a province w ill bring t he st at ist ical problem because t he r esult f rom preliminary r esearch show s dat a singularit y t hat is not accept able in t erms of ordinary least squares r egr ession.

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This research t hen incorporat es several new exogenous variables t hat are suit able w it h t he circumst ances w hich exist in Indonesia. Those variables consist of inf lat ion, island-based locat ion of local governm ent s and administ rat ive st at us of local government s. Inflat ion is a new proxy for macroeconomic fact ors. Island-based locat ion of local governm ent and administ rat ive st at us of local governm ent are t he proxies for geographical fact ors.

Inflat ion is incorporat ed in t his research because several resear ches (Hut agaol, 2002; and Nugroho, 2007) show t hat inflat ion has effect on local governm ent original revenue w hich is an import ant aspect of financial perfor mance of local governm ent . Geographical fact ors ar e incorporat ed in t his r esear ch because Indonesia suffer s economic disparit y based on geographical fact ors (see Daryant o, 2003 and Edy, 2009). The first geographical fact or is island-based locat ion of local government w hich divides local governm ent s in Indonesia int o t w o areas: local governm ent s locat ed in Java and Bali Island versus local governm ent s locat ed out side Java and Bali Island. Economic disparit y caused by island-based locat ion of local government is indicat ed by Edy (2009) w ho st at es t hat Java and Bali cont ribut e sixt y percent t o nat ional gross dom est ic product s (GDP) and all areas locat ed out side t hose islands cont ribut e t he r est . The second geographical fact or is administ rat ive st at us of local gover nm ent s w hich divides local governm ent s int o t w o administ rat ive st at uses: municipalit ies and r egencies. Economic disparit y is also caused by administ r at ive st at us of local governm ent s as indicat ed by Daryant o (2003) w ho st at es t hat one of unsolved developm ent problems in Indonesia is urban primacy. Besides t hat , The M inist ry of Underdeveloped Regions and The Accelerat ion of Indonesian East Region Developm ent in 2008 st at es t hat t here ar e 199 r egencies in Indonesia t hat classified as underdeveloped r egions. It means t hat none of t he municipalit y is classified as underdeveloped region. Thus, t his research is a modificat ion from Cohen (2008) w hich t ries t o gener alize t he model developed by Cohen (2008) in Indonesian cont ext .

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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

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(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

This research is import ant for several reasons. First , it analyses t he financial st at em ent s of a large number of local governm ent s w hich is st ill rare for public sect or sur veys. Second, it analyses t he cont ent of financial st at em ent t hr oughout t im e (i.e. for t w o financial st at em ent years). Thus, t he conclusions ar e not rest rict ed t o one-year dat a. Finally, t he result s may assist policy makers in designing bet t er perf ormance m easur em ent f or t heir supervised organizat ions t hat not only borrow but also ext end and adapt privat e sect or pract i ces t o t he public sect or cont ext .

E. Expected Benefit

This research is expect ed t o be useful in t hree w ays. First , it is expect ed t o gi ve t he cont ribut ion t o t he em er ging st udy of public sect or in Indonesia as t he researches concerning t he public sect or account ing ar e st ill rare. Second, it is expect ed t o gi ve t he pract ice guidance t o t he policy makers (especially for t he cent ral government as t he donat or of f und) in assessing t he perfor mance using t he r esult s of t his research. The t hird benefit expect ed from t his research is t o give t he enrichment t ool for local governm ent s in planning and assessing t heir f inancial perfor mance using not only local governm ent original revenue r elat ed rat ios but also ot her financial rat ios adapt ed from privat e sect or.

F. Chapter Organization

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Chapter II : LITERATURE REVIEW AND HYPOTHESIS FORM ULATION

This chapt er discusses about account ing ref orm in Indonesia, financial rat io analysis, exogenous fact or select ion, hypot hesis for mulat ions and t heor et ical framew orks.

Chapter III : RESEARCH M ETHOD

This chapt er discusses about r esear ch met hods comprising dat a collect ions, populat ion and sample, operat ional definit ion and variable measur em ent , and analysis t echnique

Chapter IV : DATA ANALYSIS

This chapt er discusses about dat a analysis comprising dat a descript ion, descript ive st at ist ics, result s of hypot hesis t est ing, and discussion

Chapter V : CONCLUSIONS AND SUGGESTIONS

This chapt er discusses about conclusions of t he r esearch, limit at ions, and suggest ions for fut ure researches.

CHAPTER II

LITERATURE REVIEW AND HYPOTHESIS DEVELOPM ENT

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The public sect or account ing refor m in Indonesia is not a revolut ion. It passes a long journey t hrough phase t o phase. For t he t ime being, t he last phase of t he r eform is signed by t he issuance of law about st at e finance w hich consist s of Law Num ber 17 Year 2003 about St at e, Act Number 1 Year 2004 About St at e Tr easury and Law Number 15 Year 2004 about St at e Finance Audit . Art icle 32 (1) Act Number 17 Year 2003 about St at e Finance st at es t hat t he r esponsibilit y of budget implement at ion (bot h st at e budget and local gover nment budget ) has t o be report ed in form of financial st at em ent s t hat comply w it h governm ent account ing st andard.

The st ruggle t o r ef orm governm ent al account ing w as st art ed by M inist r y of Finance in 1979-1980 by t he planning of government al account ing syst em modernizat ion st udy but t he realizat ion of t he st udy w as st art ed in 1982 and w as financially sponsored by World Bank (Soegijant o and Hoesada, 2005). Unfort unat ely, t he next phases of account ing ref orm had not t ouched t he int roduct ion of accrual account ing. The refor m process st ill used cash basis account ing unt il t he issuance of st at e finance law packages in 2003 and t hen follow ed by t he issuance of Government Rule No. 24 Year 2005 about Governm ent al Account ing St andard.

The Government al account ing st andard consist s of Concept ual Framew or ks and eleven Government al Account ing St andard St at em ent s (GASS). The eleven of GASS are as f ollow s:

1. GASS 01 Financial St at ement s Pr esent at ion 2. GASS 02 Budget Realizat ion Report

3. GASS 03 Cash Flow St at em ent s 4. GASS 04 Not e t o Financial St at ement s 5. GASS 05 Invent or y Account ing 6. GASS 06 Invest m ent Account ing 7. GASS 07 Fixed Asset s Account ing

xxviii 8. GASS 08 Const ruct ion in Progress Account ing 9. GASS 09 Liabilit y Account ing

10. GASS 10 Error Correct ion, Change on Account ing Policy and Ext raordinary Event 11. GASS 11 Consolidat ed Financial St at ement s

One of t he import ant point s from t he St andard is t he int roduct ion of accrual basis account ing in report ed financial st at ement s. The Concept ual Framew ork st at es t hat account ing basis used in t he f inancial st at em ent s is cash basis t o acknow ledge r evenues, expendit ur es and financing in budget r ealizat ion repor t . On t he ot her hand, accrual basis is used t o acknow ledge asset s, liabilities and equit ies in balance sheet . The combinat ion of accrual and cash basis account ing is know n as cash t ow ard accrual basis account ing. Indonesia uses t his account ing basis because budget r ealizat ion report adopt s cash account ing basis (M ust ofa, 2008). M ust ofa (2008) also st at es t hat full accrual basis account ing can be applied if Indonesia uses accrual-based budget ing in it s budget ing syst em.

The em erging issues in public sect or account ing r efor m in Indonesia are t he shift f rom single ent r y t ow ards double ent r y bookkeeping and t he shift from cash basis account ing t ow ards accrual basis account ing (M ar diasmo, 2006). In relat ion t o bookkeeping, M ardiasmo (2006) st at es t hat t he change from single t o double ent ry bookkeeping is caused by t he massive demand in r ealizing good public governance by considering t hat t he applicat ion of double ent r y bookkeeping w ill result in audit able financial st at ement s. In relat ion t o account ing basis, M ardiasmo (2006) st at es t hat t he main dr aw back of cash basis account ing is t hat it less in reflect ing t he act ual perfor mance t han t he accrual basis. M ellor (1996) st at es t hat t he implement at ion of accrual account ing gives full pict ure t hat includes resource management , liabilit y managem ent , and provides indicat ions of long t erm fiscal pow er in accordance w it h financial m anagem ent refor m and ot her managem ent refor ms. Furt her, The Law Number 17 Year 2003 about St at e Finance st at es t hat accrual basis

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account ing must be applied t o all t ypes of financial st at em ent s including budget realizat ion report .

Account abilit y is one of rol e expect ed f rom t he public sect or r efor m in Indonesia as st at ed in Governm ent al Account ing St andard. Account abilit y is a disclosure of act ivit ies and f inancial perfor mance t o t he st akeholders (Schiavo-Campo and Tomasi, 1999). Gillibrand and Hilt on (1998) advocat es t hat t he use of accrual account ing could impr ove account abilit y. In a w ell funct ioning local governm ent budget and managerial st ruct ure, a local government is subject t o account abilit y t o it s cit izens, account abilit y t o public agencies and account abilit y t o higher l evel governm ent s (Schaeffer and Yilmaz, 2008).

Aust ralia is one role model in applying t he accr ual basis account ing in it s local government s. Local government financial report ing r efor ms in Aust ralia in t he lat e 1980s and early 1990s w er e promot ed on t he basis of usefulness for decision making and for enhanced account abilit y purposes. How ever, persist ent crit icism of t he ref or ms cont inue t o be made, including t hose made by councilors and ot her rat epayers w ho oft en appear t o find such informat ion t o be t oo narrow , t oo complex, and oft en bew ildering (Carnegie, 2005).

The availabilit y of f inancial st at ement s in government ent it ies is a for m of t ransparency needs over t he managem ent of public resources. Tr ansparency of infor mat ion especially f inancial and fiscal informat ion should be implem ent ed in a relevant and underst andable for m (Schiavo-Campo and Tomasi, 1999). This not ion aligns w it h the exist ence of Government al Account ing St andard in Indonesia.

Account ing also plays role in enhancing t ranspar ency in local government s by disclosing financial inf ormat ion honest ly and openl y t o t he societ y based on t he judgment t hat t he societ y

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has a right t o know t he governm ent ’s responsibilities in managing ent rust ed r esour ces and governm ent ’s obedience t o t he posit ive law s. The audit able financial st at em ent s by t he supr eme audit inst it ut ion enable t he local governm ent s t o disclose t he infor mat ion about t he managed resources (SAP, 2005). The t ranspar ency of infor mat ion, especially financial and fiscal informat ion should be r ealized in t he r elevant f or m and easy t o underst and (Schiavo-Campo, 1999). The not ion of t ransparency is also advocat ed by van der Hoek (2005).

B. Financial Ratio Analysis

Financial rat ios are used for all kinds of purposes. Barnes (1987) st at ed t hat t he uses of financial r at ios include t he assessm ent of t he abilit y of a f irm t o pay it s debt s, t he evaluat ion of business and managerial success and even t he st at ut ory r egulat ion of a firm’s perf ormance. Whit t ingt on (1980) ident if ied t w o principles uses of financial rat ios. The t radit ional, normat ive use of t he measur em ent of a firms’ rat io compared w it h a st andard, and t he posit ive use in est imat ing empirical relat ionships, usually for predict ive purposes.

The use of financial rat ios and t heir analysis becom es m ore challenging if t he analysis is ext ended int o t he public sect or, especially in local government s because financial rat ios ar e com monly used in privat e cont ext and researches r elat ed t o financial rat io analysis in public sect or cont ext ar e st ill rare. The analysis of Alijarde (1997) revealed t hat local ent it ies mainly use t he f inancial rat ios t hat exist in t he business ent it ies and adapt t hem t o t heir needs. Cohen (2008) found t hat t he assessment of financial performance t hrough t radit ional financial rat ios is influenced by macr oeconomic fact ors.

Analyzing t he financial r at io in local government involves mor e complicat ed problem t han doing t he analysis in privat e sect or as st at ed by Zehms (1991) t hat ident ifies t w o fact ors as

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barriers in successfully analyzing t he financial st at ement s of local governm ent s. The first barrier is t he lack of w idely accept ed financial rat ios and t he second barrier is t he fact t hat since such rat ios do not exist neit her are t her e nat ionw ide nor ms against w hich t o com pare t he rat ios for a part icular local governm ent s.

The obst acles of conduct ing financial rat io analysis in public sect or can be solved by underst anding t he nat ur e of financial rat ios implement at ion in local government s as indicat ed by Cohen (2008) w ho st at ed t hat financial rat ios implement at ion in local governm ent s ar e not as st raight f orw ard as t he privat e sect or. The evaluat ion of public sect or ent it ies’ financial condit ion involves judgm ent s about t he int erplay of complex social, organizat ional and financial fact ors. In general t er ms, economy, geography and demographi cs const it ut e major component s of a local governm ent f inancial condit ion as t hey ar e det er mining fact ors of a government s’ abilit y t o m eet it s f inancial and service obligat ion.

Thus, as t he charact erist ics of t he com munit y ar e expect ed t o have an impact on t he act ivit y of local government s, t he use of macroeconomics t ype paramet ers as moderat ors w hen assessing t he perfor mance of public sect or ent it ies is a com monly employed f eat ur e in public sect or ef ficiency st udies as conduct ed by At hanassopulos and Triant is (1998) and Cohen (2008). At hanassopulos and Triant is (1998) have analyzed t he efficiency of 172 large Gr eek local governm ent s for t he year 1996 on t he basis of cash-basis account ing dat a. They concluded t hat t he most efficient local governm ent s w ere t hose t hat had higher t ax bases, incom e levels and public invest m ent share on t ot al expendit ure.

1. Financial ratio selection

The financial rat ios developed in t his research ar e based on financial rat ios used by Cohen (2008) w it h several modificat ions adjust ed w it h Indonesian cont ext . The financial rat ios ar e

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profit abilit y rat ios, liquidit y rat ios, capit al st ruct ur e rat ios, and perfor mance rat ios. Cohen (2008) st at ed t hat t he f inancial rat ios select ion is based on privat e sect or and public sect or lit erat ur e such as ICM A (2003), Berne (1992), Ant hony and Young (2003), and Finkler (2005). M oreover, t he select ed rat ios aim at achieving balanced r epr esent at i on of t he four broad cat egori es of f inancial rat ios w it hin t he analysis f ramew ork (Cohen, 2008).

a. Profit abilit y rat ios

In privat e sect or, one of t he most difficult at t ribut e of a fir m t o concept ualize and t o measur e is profit abilit y. Ross et al. (2005) st at ed t hat t he pr ofit abilit y rat ios cont ain t w o draw backs. The first draw back is t hat many business opport unit ies involve sacrificing curr ent profit for fut ure profit s and possibly t he business w ill produce low init ial profit s. Thus, current profit s can be a poor r ef lect ion of t rue f ut ur e profit abilit y. The second draw back is t hat t hey ignore risk.

Profit abilit y in public sect or is measured by comparing surplus or deficit on local governm ent ’s budget w it h equit y, t ot al asset s and local government original r evenue. Thus, prof it like usually know n in privat e sect or is replaced by budget surplus or deficit . Even t hough profit abilit y is not a primary goal in t he public sect or, t he exist ence of a r easonable surplus is necessar y in or der f or a municipalit y t o have enough funds t o finance it s long-t erm invest m ent (Cohen, 2008).

In Indonesia, budget surplus or deficit is ruled under The Governm ent Rule Number 58 Year 2005 about Local Governm ent Financial M anagement . The Rule st at es t hat ever y local governm ent can not exceed t he deficit limit based on minist er of f inance’s decr ee. M eanw hile, local gover nm ent s can use budget surplus t o pay debt s, est ablish reser ve fund and finance social securit y program. Thus, The Rule indicat es t hat r easonable surplus is favorable because local

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governm ent can use surplus t o pay debt s, est ablish reser ve fund and finance social securit y program. On t he cont rar y, deficit is less favorable because local governm ent has t o r eimburse t he deficit w it h several resources as st at ed by Governm ent Rule Number 58 Year 2005 w hich consist of posit ive value of budget calculat ion dif fer ence from previous year, reimbursed reser ved fund, asset auct ion and debt .

The pr ofit abilit y rat ios used in t his research consist of ret urn on equit y rat io (ROE), r et urn on asset s rat io (ROA) and profit margin rat io (PM ). The profit abilit y rat ios ar e included in t his research because t hey provide a reflect ion of eff iciency in t he use of resources (Cohen, 2008).

b. Short -t er m solvency

Rat ios of shor t -t erm solvency measur e t he abilit y of t he fir m t o m eet r ecurring f inancial obligat ions (Ross et al. 2005). The ent it y should have a good rat io in t his t erm t o avoid f inancial dist ress. In cont ext of local governm ent , t he short -t erm solvency indicat or show s local governm ent abilit y t o sust ain a st rong financial posit ion (Cohen, 2008).

The financial obligat ion of local governm ent s in Indonesia is ruled under Government Rule Number 54 Year 2005 about Local Government Debt . The Rule enables local governm ent s t o issue bonds in order t o cope w it h financial difficulties. How ever, The Rule rest rict s local govern ment s t o involve in debt by r equiring ever y local governm ent meet several crit eria as st at ed by Sect ion 11 and 12 successively.

Sut aryo (2009) invest igat ed t he r elevance of Indonesian local gover nment s f inancial st at em ent s st at ed in financial rat ios t o financial dist ress and found t hat informat ion cont ent in local governm ent financial report has r elevant value t o Indonesian local governm ent ’s f inancial dist ress. Cohen (2008) invest igat ed fact ors influencing financial performance in Greek

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municipalit ies and f ound t hat f inancial perf or mance t hat elaborat ed w it h several financial rat ios including current rat io is influenced by macroeconomic fact ors.

The m ost w idely used m easur es of account ing liquidit y are current rat io and quick rat io (Ross et al, 2005). How ever, t he short t er m solvency used her e is only t he curr ent rat io since t he quick rat io is not applicable because t he pr esence of invent or ies t hat only suit able for privat e sect or.

c. Capit al st ruct ure rat io

Capit al st ruct ur e rat ios show how t he ent it y is being f inanced. The f inancing sour ce comes from t w o sources; liabilit y and equit y. The t w o common rat ios for capit al st ruct ur e rat ios ar e debt t o equit y rat ios and debt t o t ot al asset r at io.

This resear ch w ill incorporat e t he debt t o equit y rat io and t he long t erm deb t o t ot al asset s rat io. The higher t he value of debt t o equit y r at io, t he gr eat er t he local governm ent s’ leverage and t hus t he great er t he ext ent t o w hich it ut ilizes debt funds t o supplem ent int ernal equit y funds (Cohen, 2008).

d. Perf ormance rat io

The per for mance rat ios in t his research w ill relat e w it h t he r evenues. In Indonesian cont ext , based on t he Law Number 33 Year 2004, t he r evenue can be divided int o t hr ee t ypes; m unicipal original revenue, count erbalance funds and ot her r evenues. The rat ios ar e divided int o t hr ee rat ios: asset s t urnover rat io, operat ing r evenue t o t ot al revenues and operat ing r evenue t o

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operat ing expense. Based on t he law , operat ing revenue is represent ed by local governm ent original revenue.

The asset s t urnover rat io repr esent s t he efficiency use of asset s in generat ing t he municipal original revenue. The operat ing r evenue t o t ot al revenues show s t he degr ee independency of local governm ent s from t he cent ral governm ent subsidies. Operat ing revenue t o operat ing expenses rat io show s t he abilit y of Local governm ent original revenue in f inancing t he operat ing expenses.

C. Exogenous Fact or Select ion

This resear ch proposes macroeconomic variables, size, and geographical fact ors t hat are conject ur ed t o influence t he behavior of f inancial rat ios. M acroeconomic fact ors ar e repr esent ed by gross dom est ic regional product (GRDP). The var iables proposed by pr evious research (Cohen, 2008) w ill be modified in t his research by adding and omit t ing several variables. The geographical fact ors r epr esent ed by w het her a local government is a capit al of a province or not w ill be omit t ed from t his research since it w ill generat e dat a singularit y in dat a analysis.

The st at us as a capit al w ill be replaced by island-based locat ion of local gover nm ent s and administ rat ive st at us diff er ence of local governm ent . Island-based locat ion of local governm ent s divide local governm ent s int o t w o broad ar eas; locat ed in Java and Bali versus locat ed out side Java and Bali. Administ rat ive st at us dif fer ence divides local governm ent s int o municipalit ies and regencies. Island-based locat ion of local governm ent s and administ rat ive st at us differ ence of local governm ent s ar e included in t his research because Indonesia has a problem r elat ed t o t he economic disparit ies caused by t hose geographical f act ors (see Bhinadi, 2003; Daryant o, 2003, and Edy, 2009).

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The modificat ion is also made in macroeconomic f act or by adding t he inflat ion as a new exogenous var iable because sever al resear ches (for example; Hut agaol, 2002 and Nugroho, 2007) show t hat inf lat ion has effect s on local government original revenue. Local governm ent original revenue is one of import ant component t hat composes financial per formance.

1. M acroeconomic factor

a. GRDP

GRDP m easur es t he w ealt h of local governm ent s. St at ist ics Bur eau of t he Republic of Indonesia or Badan Pusat St at ist ik (BPS) uses t hr ee approaches in m easuring GRDP, namely, product ion approach, expendit ur e approach and income approach.

Product ion approach expresses GRDP as t he t ot al value of final goods and ser vices produced by all product ion unit s in a region w it hin a cer t ain period (usually one year period). Product ion unit s are gr ouped as in t he Int ernat ional St andard Indust rial Classificat ion of All Economic Act ivit ies (ISIC), w hich are: Agr icult ure; M ining and Quarrying; M anufact uring Indust ries; Elect ricit y, Gas and Wat er Supply; Const ruct ion; Trade, Hot el and Rest aurant ; Tr ansport and Comm unicat ion; Financial, Ow nership and Business Services; Ser vices including governm ent ser vices.

Expendit ur e approach expr esses GRDP as t he t ot al of final demand component s, covering t he consumpt ion expendit ur e of households and privat e nonprofit inst it ut ions, government consumpt ion, gross dom est ic f ixed capit al format ion, increase in st ock and net export w it hin a cer t ain period. Net export is t he export minus import .

Incom e approach expresses GRDP as t he t ot al incom e by product ion fact ors engaged in t he product ion process in a r egion. The incom e com ponent s of t he product ion fact ors may t ake t he

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form of w ages or salar ies, land r ent , capit al int erest and profit margin. The profit s include income t ax and ot her direct t axes. In t his definit ion, t he GRDP also cont ains depr eciat ion and net direct t axes.

In relat ion t o profit abilit y rat io, a local governm ent w it h high GRDP t ends t o enhance t he value of local government r evenue t hrough local governm ent original revenue and r evenue sharing. This sit uat ion will enhance t he f iscal capacit y of local gover nment . The rise of fiscal capacit y w ill enhance t he possibilit y t o enhance budget surplus, cet eris paribus. The rise of local governm ent revenue w ill also raise t he possibilit y t o enhance t he value of asset and equit y. Cohen (2008) f inds t hat profit abilit y rat io is influenced by GRDP. Thus, it is expect ed t hat GRDP w ill influence t he profit abilit y rat io.

Based on t he above discussion, t his research proposes t he f ollow ing hypot heses:

H1a: Ret urn on equit y (ROE) w ill be influenced by GRDP

H1b: Ret urn on asset s (ROA) w ill be influenced by GRDP

H1c: Profit margin (PM ) will be influenced by GRDP

In r elat ion t o curr ent rat io, t he rise of local government revenue t ends t o enhance t he capacit y of local governm ent t o cope w it h cash shor t age, cet eris paribus. Thus, t he bigger t he capacit y of local government t o cope w it h cash short age, t he low er t he possibilit y for local governm ent t o use current liabilit y as t he financing inst rument . The rise of local governm ent revenue also t ends t o enhance t he value current asset , cet eris paribus. Cohen (2008) found t hat GRDP has t he influence on curr ent rat io. Thus, it is expect ed t hat GRDP w ill influence t he curr ent rat io.

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Based on t he above discussion, t his research proposes t he f ollow ing hypot heses:

H1d: Current rat io (CR) w ill be influenced by GRDP

In relat ion t o capit al st ruct ure rat io, t he r ise of local governm ent revenue t ends t o enhance t he value of asset and equit y, cet eris paribus. If t he value of debt is const ant , GRDP w ill affect t he capit al st ruct ur e rat io negat ively. How ever, Cohen (2008) found t hat GRDP influences capit al st ruct ur e rat io negat ively. This indicat es t hat local government s t hat have higher r evenue t ends t o use debt as t he financing inst rument .

Based on t he above discussion, t his research proposes t he f ollow ing hypot hesis:

H1e: Debt t o equit y rat io (D/ E) will be influenced by GRDP

H1f: Long t erm debt t o t ot al asset s rat io (L/ A) will be influenced by GRDP

In relat ion t o perfor mance rat io, GRDP t ends t o enhance t he value of local government original revenue. The rise of local governm ent original revenue t ends t o enhance t he value of of perfor mance rat io, cet er is paribus. Cohen (2008) found t hat GRDP influences t he perfor mance rat io. Thus, it is expect ed t hat GRDP w ill influence t he perf or mance rat io.

Based on t he above discussion, t his research proposes t he f ollow ing hypot hesis:

H1g: Asset s t urnover rat io (AT) w ill be influenced by GRDP

H1h: Local government original revenue t o t ot al r evenue rat io (LORTOR) w ill be influenced by GRDP

H1i: Local governm ent original revenue t o operat ing expense rat io (LORPREX) w ill be influenced by GRDP

xxxix b. Inflat ion

Usually, inflat ion relat es t o a rise in t he general level of prices of goods and ser vices in an econom y over a period of t ime. Inflat ion consist s of demand side inflat ion and cost pull inflat ion. Demand side inflat ion is usually follow ed by t he rise of GDP. Cost pull inflat ion is t he t ype of inflat ion caused by t he rise of cost of product ion. Cost pull inflat ion is usually follow ed by t he decline of purchasing pow er.

In cont ext of local governm ent , Hut agaol (2003) conduct s t he research invest igat ing about fact ors influencing t he ent ert ainm ent t ax in DKI Jakart a and finds t hat inflat ion has effect on ent ert ainment t ax revenue. Nugr oho (2007) invest igat es f act ors influencing pr opert y t ax r evenue in Klat en Regency and finds t hat inflat ion has negat ive impact on land propert y t ax revenue.

The influence of inflat ion on prof it abilit y rat io depends on t he t ype of inf lat ion. Demand side inflat ion is expect ed t o influence prof it abilit y rat i o posit ively because it is usually follow ed by t he rise of GDP. As discussed in pr evious discussion, t he rise of GDP is expect ed t o influence profit abilit y rat io positively. On t he ot her hands, cost pull inflat ion is expect ed t o influence profit abilit y rat io negat ively because it is usually follow ed by t he decline of purchasing pow er . The decline of purchasing pow er t ends t o decline t he local governm ent ’ s economic act ivit y. The decline of economic act ivit y t ends t o reduce t he value of local governm ent r evenue. The decline of local governm ent revenue t ends t o decline t he budget surplus, equit y, and asset .

Based on t he above discussion, t his research proposes t he f ollow ing hypot heses:

H2a: Ret ur n on equit y (ROE) w ill be influenced by inflat ion

H2b: Ret urn on asset s (ROA) w ill be influenced by inflat ion

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The influence of inf lat ion on current rat io also depends on t he t ypes of inflat ion. Demand side inf lat ion is expect ed t o have similar influence on current rat io as GDP. On t he ot her hands, t he cost pull inflat ion is expect ed t o have influence on current r at io negat ively because it t ends t o reduce t he value of local governm ent r evenue. The decline of local governm ent r evenue t ends t o lead t he cash shor t age problem. The decline of local government r evenue also t ends t o r educe t he value of current asset , cet eris paribus. Thus, cost pull inflat ion t ends t o influence t he curr en t rat io negat ively.

Based on t he above discussion, t his research proposes t he follow ing hypot heses:

H2d: Current Rat io (CR) w ill be influenced by inf lat ion

In accordance w it h capit al st ruct ure rat io, t he demand side inflat ion is expect ed t o have influence similar t o GRDP. On t he ot her hands, t he cost pull inflat ion is expect ed t o negat ively influence t he capit al st ruct ur e. The cost pull inflat ion t ends t o reduce local government r evenue. The decline of local governm ent r evenue t ends t o r educe t he value of asset and equit y. This sit uat ion t ends t o push local governm ent t o choose debt as t he financing inst rument .

Based on t he above discussion, t his research proposes t he follow ing hypot heses:

H2e: Debt t o equit y rat io (D/ E) w ill be influenced by inflat ion

H2f: Long t erm debt t o t ot al asset s rat io (L/ A) will be influenced by inflat ion

The inf luence of inflat ion t o performance rat io w ill depend on t he t ype of inflat ion. As discussed in previous discussion, demand side rat io w ill have similar influence on performance rat io as GDRP. On t he ot her hands, cost pull inflat ion is expect ed t o influence t he perfor mance rat io negat ively because it t ends t o r educe t o r educe t he local government original revenue.

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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.

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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:

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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

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The dif f erent charact erist ics in local governm ent s i n Indonesia could also com e f rom administ rat ive st at us differ ence of local governm ent s w hich divides local government s int o t w o administ rat ive st at uses; municipalit y and regency. According t o w w w .w ikipedia.com (2009), t he differences bet w een municipalit y and r egency in Indonesia r eside on t hree point s; demographic charact erist ics, area size, and economic charact erist ics. Dat a r eleased by Indonesian St at ist ics Bur eau (BPS) implies t hat municipalit y has larger populat ion densit y t han r egency in t er ms of dem ographic charact erist ic. M oreover, municipalit y has smaller area t han t he regency in t erms of ar ea size. From t he economic charact erist ics, municipalit y t ends t o be t he cent er of indust r y and service provider, on t he ot her hand, regency t ends t o be provider in agricult ural sect or. The differences bet w een municipalit y and regency, t hus, are similar t o differences bet w een rural and urban.

When discussing about t he relat ion bet w een rural and urban in Indonesian cont ext , t he discourse of disparit y also em er ges. Daryant o (2003) st at es t hat unsolved development problem in Indonesia includes int err egional disparit y, t he high level of urban primacy, t he syner gy linkage bet w een rural and urban, underdeveloped r egions, and pover t y. It implies t hat several developm ent problems in Indonesia involve t he disparit y bet w een rural and urban. The M inist ry of Underdeveloped Regions and The Accelerat ion of Indonesian East Region Developm ent in 2008 st at es t hat t here ar e 199 r egencies in Indonesia t hat classified as underdeveloped r egions. It means t hat none of t he municipalit y is classif ied as underdeveloped r egion.

In accordance w it h prof it abilit y rat io, municipalit ies as t he cent er of indust r y and service t end t o have mor e oppor t unit ies t o raise t he local government revenue t hrough local government original revenue and revenue sharing compar ed t o r egencies. The rise of local gover nm ent

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revenue t ends t o enhance t he value of asset and equi t y, cet eris paribus. Thus, it is expect ed t hat administ rat ive st at us of local governm ent w ill have influence on profit abilit y rat io.

Based on t he discussion above, t his research proposes t he follow ing hypot hesis:

H4a: Ret urn on equit y (ROE) w ill be influenced by administ r at ive st at us of local governm ent

H4b: Ret urn on asset s (ROA) w ill be influenced by administ rat ive st at us of local governm ent

H4c: Profit margin (PM ) w ill be influenced by administ rat ive st at us of local government

In accordance w it h curr ent rat io, municipalit y t ends t o have mor e opport unit ies t o generat e r evenue compar ed t o regency. The rise of local government revenue t ends t o enhance t he value of curr ent asset , cet eris paribus. By assuming t hat t he value of curr ent asset is const ant , t he r ise of current asset is expect ed t o influence t he value of current rat io.

Based on t he above discussion, t his research proposes t he foll ow ing hypot hesis:

H4d: Current rat io (CR) w ill be influenced by administ rat ive st at us of local government

In accordance w it h capit al st ruct ure rat io, municipalit ies t end t o have m ore oppor t unit ies t o enhance local gover nm ent revenue com pared t o regencies due t o t heir st at uses as indust r y and service providers. How ever, t heir st at uses as providers of indust ry and ser vice might push t hem t o make mor e invest ment compar ed t o r egencies. This sit uat ion might urge t he local governm ent t o finance it using debt . Thus, it is expect ed t hat administ r at ive st at us of local governm ent w ill have influence on capit al st r uct ure rat io.

Based on t he above discussion, t his research proposes t he follow ing hypot heses:

xlvi

H4f: Long t er m debt t o t ot al asset s rat io (L/ A) w ill be influenced by administ rat ive st at us of local governm ent

In accordance w it h perfor mance rat io, municipalit y as t he cent er of indust ry and ser vice t ends t o have mor e opport unit ies t o earn local government original revenue and local governm ent t ot al revenue. The rise of local governm ent r evenue t ends t o enhance t he value of asset , cet eris paribus. Thus, it is expect ed t hat adm inist rat ive st at us of local governm ent w ill influence t he perfor mance rat io.

Based on t he above discussion, t his research proposes t he follow ing hypot heses:

H4g: Asset s t urnover rat io (AT) w ill be influenced by administ rat ive st at us of local gover nment

H4h: Local gover nm ent original revenue t o t ot al r evenue r at io (LORTOR) w ill be inf luenced by administ rat ive st at us of local governm ent

H4i: Local governm ent original revenue t o operat ing expense rat io (LORPREX) w ill be influenced by administ rat ive st at us of local governm ent

b. Island-based locat ion of local governm ent

The st udy about economic disparit y is alw ays int erest ing. The debat e over t he causes of economic disparit y opens a chance for r esear chers t o conduct ext ensive r esear ches in a deeper manner. This is show n by several r esearches conduct ed Hult en and Schw ab (1984) in Bhinadi (2003), Klenow and Clar e (1997) in Bhinadi (2003), and East erly and Levine (1992) in Bhinadi (2003). Hult en and Schw ab (1991) in Bhinadi (2003) st at ed t hat gr ow t h differ ence in America is mainly caused by labor grow t h dif fer ence and capit al grow t h dif fer ence. Klenow and Clar e (1997) in Bhinadi (2003) concluded t hat grow t h -level differ ences in 91 percent invest igat ed count ries ar e caused by gr ow t h diff er ence in t ot al fact or pr oduct i vit y, not caused by capit al grow t h. East erly

xlvii

and Levine (2000) f ound t hat physical fact ors fail in explaining cross-count r y and cross t ime grow t h difference.

When discussing about diff erences bet w een Java and Bali versus local governm ent s locat ed out side t hose islands, t he frequent ly discussed t opic is about disparit y, especially in economic disparit y. Bhinadi (2003) st at ed t hat t her e ar e t w o issues w hen discussing about regional economic disparit y. The first issue r elat es t o r esour ces of regional grow t h. The second issue relat es t o t he r egional disparit y it self. Bhinadi (2003) analyzes t he r egional disparit y bet w een Java and out side Java and finds t hat t her e is no regional grow t h disparit y bet w een t hem. On t he cont rar y, t he official release from The M inist ry of Underdeveloped Regions and The Accelerat ion of Indonesian East Region Development in 2008 st at es t hat f rom all local governm ent s classified as underdeveloped region, 91 per cent ar e cont ribut ed by t he local governm ent out side Java-Bali, w hereas Java and Bali only cont ribut e t he rest of t he per cent age. Edy (2009) st at ed t hat f rom 2001 unt il 2007, Java and Bali cont r ibut e sixt y percent t o nat ional gr oss dom est ic product s (GDP) and all areas locat ed out side t hose islands cont ribut e t he r est (i.e. fort y percent ). Thus, t he influence of island-based local government on financial per for mance is expect ed t o be similar t o t he inf luence of GRDP on financial performance.

From t he discussion above, t his research proposes t he follow ing hypot hesis:

H5a: Ret urn on equit y (ROE) w ill be influenced by island-based locat ion of local gover nment

H5b: Ret urn on asset s (ROA) w ill be influenced by island-based locat ion of local governm ent

H5c: Profit margin (PM ) w ill be influenced by island-based locat ion of local governm ent

xlviii

H5e: Debt t o equit y rat io (D/ E) w ill be influenced by island-based locat ion of local government

H5f: Long t er m debt t o t ot al asset s rat io (L/ A) w ill be influenced by island-based locat ion of local governm ent

H5g: Asset s t urnover rat io (AT) w ill be influenced by island-based locat ion of local governm ent

H5h: Local gover nm ent original revenue t o t ot al r evenue r at io (LORTOR) w ill be inf luenced by island-based locat ion of local governm ent

H5i: Local governm ent original revenue t o operat ing expense rat io (LORPREX) w ill be influenced by island-based locat ion of local governm ent

xlix

The t heor et ical f ramew ork for t his research is graphed below ;

ROE ROA D/ E CR PR L/ A AT LORTOR LORPREX F i n a n c i a l P e r f o r m a

Financial Perfor mances are hypot hesized t o be influenced by

M acroeconomic Fact ors, Size, and Geographical Fact ors

Regr ession Analysis Using Ordinary Least

Squares and Panel

Local governm ent

M unicipalit y and Regency Classificat ion Populat ion Inflat ion GRDP I n d e p e n d e n t V a r i a b l e s

l

Figure 1

Theoretical Framew orks

CHAPTER III

RESEARCH M ETHOD

A. Data Collection

Dat a is collect ed f rom t he published audit ed financial st at ement s from t he official w ebsit e of BPK f rom year 2006 t o 2007. The published financial st at ement s from local government s w ill include several t ypes of audit opinion excluding adver se and disclaimer. Dat a for macroeconomic fact ors ar e collect ed f rom various sources especially dat a available in w ebsit es provided by Indonesia St at ist ics Agency or BPS , Bank of Indonesia (BI) and many ot her support ive w ebsit es.

li

1. Population

Populat ion ref ers t o t he ent ire group of people, event s, or t hings of int er est t hat t he researcher w ishes t o invest igat e (Sekaran, 2003). The populat ion of t his research is all published audit ed financial st at em ent s of Indonesian local governm ent s f or t w o years successively (f rom 2006 t o 2007).

2. Sample

A sample is a subset of populat ion and it comprises some mem bers select ed fr om t he populat ion (Sekaran, 2003). This research uses judgment al sampling t o draw t he samples fr om financial st at ement s. The use of judgment al sampling aimed t o achieve t he samples by choosing subject s t hat are in t he most suit able place t o give specif ied informat ion (Sekaran, 2003). All published financial st at em ent s cont aining any t ypes of opinion except adverse and disclaimer w ill be included in dat a calculation.

C. Analysis Technique

This research w ill use mult ivariat e r egr ession analysis t hat is done by using ordinary least squares (OLS). Ordinary least squar es (OLS) is a t echnique for est imat ing t he unknow n paramet ers in a linear regr ession model w hich minimizes t he sum of squared dist ances bet w een t he obser ved responses in a set of dat a, and t he fit t ed responses from t he r egr ession model (w w w .w ikipedia.org).

M ult ivariat e r egression analysis is used w hen t her e are t w o or mor e dependent variables exist in t he model (Khat t r ee and Naik, 2003). Because of t he nat ur e of t he dat a t hat non-linear in nat ure, t he variables such as populat ion, inflat ion and GRDP w ill be t ransformed int o logarit hmic forms (Chat t erj ee and Hadi, 2006).

lii The model w ill be proposed as follow s:

Financial Rat ios= a0 + b1 Log GRDP + b2 Log Pop + b3 Log Infl + b4 M undic + b5 Cireg

Where;

Log GRDP = Logarit hmic f orm of Gross Regional Dom est ic Product

Log Pop = Logarit hmic f orm of Populat ion

Log Infl = Logarit hmic f orm of Inflat ion

IBLOG = Island-based Locat ion of Local Governm ent s

ASLOG = Administ rat ive St at us of Local Governm ent s

To comput e t he regression model, t his research w ill use GRETL Version 1.1 Soft w are.

The assumpt ion of t he models are as following:



Nonlinearit y t est : This kind of t est is used t o check t he linearit y of t he r egression model. The model of linear regression must be linear.



Het eroskedast icit y: Her oskedast icit y happens w hen random variables have differ ent variances. Het eroskedast icit y problem of t en occurr ed in OLS t echnique. The assumpt ion of homoskedast icit y has t o be maint ained. How ever, if het eroskedast icit y is occurr ed or t he homoskedast icit y is violat ed, t hen anot her st at ist ics t echnique has t o be conduct ed. The alt ernat ive w ay t o OLS w hen homoskedast icit y exist s is w eight ed least squar es (Adkins, 2007).

liii

The w eight ed least squar es t echnique in Gret l is conduct ed using het er oskedast icit y correct ed t est .



Collinearit y: This t est is aim ed t o indicat e t he degr ee t o w hich each of t he explanat or y variables is collinear w it h t he ot her explanat or y var iables. When t his sit uat ion exist s, t he model suf fer s mult icollinearit y problems. The good regr ession model must f r ee from t his problem. In Gret l, t his assumpt ion is checked by indicat ing variance inf lat ion fact ors (VIF) value. When t he VIF is higher t han 10, t hen t he model suffers mult icollinearit y problem.



Normalit y: Nonnormalit y of errors oft en r equir ed by r egr ession model. In t he cont rary,

ordinary least squar es (OLS) t echnique does not require t his assumpt ion (Ramanat han, 1993). As st at ed by Ramanat han (1993), t he most impor t ant t hing in OLS is t hat t he dat a is nonsingular t ype free of het eroskedast icit y and mult icollinearit y problems.

D. Variable Identification

This research is a replicat ion f rom Cohen (2008) w it h several modif icat ions. The main modificat ion in t his research is caused by t he dat a availabilit y. The price and t ourist as invest igat ed by Cohen (2008) ar e unavailable. This research also modifies t he pr evious r esear ch by adding inflat ion t hat is expect ed t o have influence on f inancial rat ios.

The dependent variables ar e t he financial perfor mances t hat r epresent ed by f inancial rat ios w hich consist s of r et urn on equit y (ROE), ret ur n on asset s (ROA), profit margin (PM ), curr ent rat io (CR), debt t o equit y rat io (D/ E), long-t er m liabilit ies t o t ot al asset s (L/ A), asset s t urnover (AT), local governm ent original revenue t o t ot al r evenue (LORTOR) and local government original revenue t o t ot al expenses (LOPRPREX) and t he independent variables consist of macroeconomic fact ors t hat repr esent ed by gross regional domest ic product (GRDP) and inflat ion, size w hich represent ed by t he num ber of inhabit ant s (populat ion), and geographic variables t hat represent ed by

island-liv

based locat ion of local governm ent s (IBLOG) and administ rat ive st at us of local governm ent (ASLOG).

E. Operational Definition

The dependent variables are classified int o four groups t hat consist of profit abilit y rat io, liquidit y rat io, capit al st ruct ure rat io and perfor mance rat io. Profit abilit y rat io consist s of ret ur n on equit y, ret urn on asset s and pr ofit margin. Liquidit y rat io consist s of only current rat io. Capit al st ruct ur e rat io consist s of debt t o equit y rat io, and long-t er m liabilit ies t o t ot al asset s. Perf ormance rat io consist s of asset s t urnover, operat i ng revenues t o t ot al r evenues and operat ing revenues t o t ot al expenses.

The operat ional definit ions for each dependent variable are summarized in f ollow ing t able:

Table 1 Ratio Calculation

Ratio Name Abbreviation Calculation

Ret urn in Equit y ROE Net Surplus (Deficit )/ Equit y Ret urn on Asset s ROA Net Surplus (Deficit )/ Tot al Asset s

Profit M argin PM Net Surplus (Deficit )/ M unicipal Original Revenue

Current Rat io CR Current Asset s/ Current Liabilities Debt t o Equit y Rat io D/ E Tot al Liabilit ies/ Equit y

Long Term Debt t o

lv

Asset s Turnover AT Local Government Original Revenue/ Tot al Asset s

Local government original

revenue/ Tot al Revenue

LORTOR Local Government Original Revenue/ Tot al Revenue

Local government original

revenue/ Operat ing Expense

LORPREX Local Government Original Revenue/ Operat ing Expenses

The independent variables consist of GRDP, inflat ion, populat ion, island-based locat ion of local governm ent s and administ rat ive st at us of local governm ent . The measur ement of GRDP in t his research is based on curr ent price per capit a (w w w .bps.go.id). The GRDP dat a per local governm ent ar e not available in Indonesian St at ist ics Bur eau. How ever, such informat ion is available in t he province level. Thus, t his research w ill use t he GRDP of t he province t o w hich local governm ent belongs as a proxy for local governm ent ’s GRDP. The inflat ion dat a are also not available in local government level. Thus, t his research uses t he inflat ion r at e of t he pr ovince w here local governm ent belongs as a proxy for local governm ent ’s inflat ion rat e. Populat ion is t he populat ion in t he r egion. The dat a of populat ion is based on t he nat ional survey of BPS conduct ed in 2005. Island-based locat ion of local governm ent s and administ rat ive st at us of local governm ent s ar e dum m y dat a in nat ur e. The measurem ent of such dat a is a cat egorical measur em ent .

Law No. 22 Year 1999 about Local Governm ent Aut onomy

Law No. 32 Year 1999 about Count er Balance bet w een Cent ral and Local

M ardiasmo.2006. Pew ujudan Transparansi dan Akunt abilit as Publik M elalui Akunt ansiSekt or Publik:Suat u Sarana Good Governance: Jurnal AKunt ansi Pem erint ahan Vol. 2, No. 1, M ei 2006

M ellor, T., 1996, ‘ Why Government Should Produce Balance Sheet s’, Aust ralian Journal of Public Administ rat ion 55(1) 78-81, M arch.

Ramanat han, Ramu. (1993). St at ist ical M et hods in Econom et rics. Academic Pr ess, Inc: San Diego.

Schaeff er, M ichael and Yilmaz, Serdar. (2008) St rengt hening Local Government Budget ing and Account abilit y). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2008. Available at SSRN: ht t p:/ / ssr n.com/ abst ract =1297806

Schiavo-Campo, S., and Tomasi, D., 1999, M anaging Government Expendit ur e, Asian Developm ent Bank, M anila.

Sekaran, Uma. (2003). Resear ch M et hods for Business. John Wiley and Sons: New York

Soegijant o and Hoesada, 2005. M enyambut Era Baru Akunt ansi Pem erint ahan. Harian Sinar Harapan

van der Hoek, M .P. (2005), ‘From Cash t o Accrual Budget ing and Account ing in t he Public Sect or:The Dut ch Experience’, Public Budget ing and Finance, Vol. 25, No. 1, pp. 32–45.

Whit t ingt on, G, (1980), 'Some Basic Pr opert ies of Account ing Rat ios', Jour nal of Business Finance and Account ing (Sum mer 1980), pp. 219-223.

Zehms, K.M . (1991) Proposed financial rat ios for use in analysis of municipal annual f inancial report s. Government Account ant s Journal, Aut umn, pp- 79-86

APPENDIX I.

DATA DESCRIPTION FOR 2006

NAD 21 5 0 2 14

Nort h Sumat era 26 17 1 0 8

Riau 11 2 0 1 8

Kepulauan Riau 6 1 0 2 3

Bengkulu 8 3 0 0 5

Jambi 10 2 0 0 8

W est Sumat era 20 5 0 0 15

Sout h Sumat era 14 1 0 0 13

Bangka Belit ung 7 0 0 0 7

Lampung 10 0 0 0 10

Bant en 6 0 0 2 4

W est Java 25 0 0 2 23

Cent ral Java 35 1 0 1 33

DIY 5 1 1 0 3

East Java 38 5 0 2 31

Bali 9 0 0 1 8

Nusa Tenggara Bar at 9 2 0 0 7

Nusa Tenggara Timur 17 4 1 1 11

W est Kalimant an 12 3 1 0 8

Sout h Kalimant an 13 0 3 1 9

Cent ral Kalimant an 14 2 3 1 8

East Kalimant an 13 0 0 0 0

W est Sulaw esi 4 0 0 0 4

APPENDIX 11.

DATA DESCRIPTION FOR 2007

Province Tot al LG Disclaimer Adverse Incomplete

Tot al Incorporated

Data

NAD 21 2 0 0 19

Nort h Sumat era 26 13 0 0 13

Riau 11 2 0 0 9

Kepulauan Riau 6 0 0 0 6

Bengkulu 9 0 0 3 6

Jambi 10 0 0 0 9

W est Sumat er a 20 5 0 0 15

Cent ral Sulaw esi 9 3 0 0 6

Sout h East Sulaw esi 10 1 0 7 2

Nort h Sulaw esi 9 5 1 0 3

Goront alo 5 0 0 0 5

M aluku 7 4 0 0 3

Nort h M aluku 8 5 0 0 3

W est Papua 8 6 0 0 2

Papua 16 16 0 0 0

Sout h Sumat era 14 0 0 0 14

Bangka Belit ung 7 0 0 0 7

Lampung 10 0 0 0 10

Bant en 6 1 0 0 5

W est Java 25 6 0 0 19

Cent ral Java 35 4 0 1 30

DIY 5 0 1 0 4

East Java 38 0 36 0 2

Bali 9 0 0 0 9

Nusa Tenggara Barat 9 3 0 1 5

Nusa Tenggara Timur 17 1 0 4 12

W est Kalimant an 12 3 3 0 6

Sout h Kalimant an 13 1 4 1 7

Cent ral Kalimant an 14 4 5 0 5

East Kalimant an 13 5 7 1 0

W est Sulaw esi 4 0 0 0 4

Sout h Sulaw esi 23 4 0 1 18

Cent ral Sulaw esi 9 5 0 0 4

Sout h East Sulaw esi 10 6 0 1 3

Nort h Sulaw esi 9 0 6 0 3

Goront alo 5 2 0 0 3

M aluku 7 4 0 1 2

Nort h M aluku 8 3 0 0 5

Papua 19 0 0 0 0