The Effect Of Profit Sharing Funds, Economic Growth And Capital Expenditure On Financial Performance With Local Original Income As A Moderating Variable In The District/city Government In North Sumatra Province

by ADMIN 211 views

The Effect of Profit Sharing Funds, Economic Growth, and Capital Expenditure on Financial Performance with Local Original Income as a Moderating Variable in the District/City Government in North Sumatra Province

Introduction

The financial performance of local governments in districts/cities in North Sumatra Province is a crucial aspect of regional development. It affects the provision of public services and investment in infrastructure. In this study, we aim to analyze the effect of profit sharing funds, economic growth, and capital expenditure on financial performance, with Regional Original Revenue (PAD) as a moderating variable. The study also aims to provide insights on the importance of collaboration between local revenue, profit sharing funds, and capital expenditure in creating optimal financial performance.

Background

The population studied included all regencies/cities in North Sumatra Province recorded in the North Sumatra Regional Revenue and Expenditure Budget Report (APBD). The data used in this study are secondary data, obtained from the annual realization of the APBD which is accessed through the web website of the Directorate General of Regional Financial Balance, the Central Sumatra Statistics Agency, and the North Sumatra Provincial Governor's Office for 2014. The sampling technique used is purposive Sampling, which produced a total sample of 95 districts/cities.

Methodology

The data analysis methods used include descriptive statistical analysis, classical assumption tests, simple linear regression analysis, and multiple linear regression analysis with interaction tests. The results showed that (1) profit sharing funds, economic growth, and capital expenditure have a positive influence on direct financial performance. Meanwhile, the indirect effect of capital expenditure also seems to have a positive impact on financial performance. (2) Interaction of Regional Original Revenue is proven to have a positive influence on the relationship between profit sharing funds, economic growth, and capital expenditure with financial performance. In addition, regional original income also indirectly also has a positive influence on the relationship between economic growth and financial performance.

Results and Discussion

This study provides important insights on the financial performance of local governments in North Sumatra Province. Good financial performance is very important for regional development, because it will affect the provision of public services and investment in infrastructure. One of the interesting findings of this research is the important role of local revenue as a moderating variable. This shows that areas that have high PAD can maximize the positive effects of profit sharing funds, economic growth, and capital expenditure on financial performance. In other words, an intelligent area in managing its income will be able to improve financial performance better.

Positive economic growth is also a key factor in improving financial performance. When the economy grows, regional income will also increase, so that local governments have more resources to be invested in development. However, it should be noted that sustainable economic growth must be balanced with efficient capital expenditure management so that there is no budget waste.

Conclusion

Overall, this research emphasizes the importance of collaboration between local revenue, profit sharing funds, and capital expenditure in creating optimal financial performance. Therefore, local governments in North Sumatra Province must focus more on strengthening PAD capacity, good capital expenditure management, and encouraging sustainable economic growth to achieve the desired results.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Strengthening PAD capacity: Local governments in North Sumatra Province must focus on strengthening PAD capacity to maximize the positive effects of profit sharing funds, economic growth, and capital expenditure on financial performance.
  2. Good capital expenditure management: Local governments must ensure that capital expenditure is managed efficiently to avoid budget waste and ensure that resources are allocated effectively.
  3. Encouraging sustainable economic growth: Local governments must encourage sustainable economic growth to increase regional income and provide more resources for development.
  4. Collaboration between local revenue, profit sharing funds, and capital expenditure: Local governments must collaborate with local revenue, profit sharing funds, and capital expenditure to create optimal financial performance.

Limitations of the Study

This study has several limitations, including:

  1. Secondary data: The study used secondary data, which may not be accurate or up-to-date.
  2. Purposive sampling: The study used purposive sampling, which may not be representative of the entire population.
  3. Limited scope: The study focused on local governments in North Sumatra Province, which may not be generalizable to other regions.

Future Research Directions

Future research directions include:

  1. Investigating the effect of other variables: Future studies can investigate the effect of other variables, such as human capital, infrastructure, and institutional capacity, on financial performance.
  2. Examining the impact of PAD on financial performance: Future studies can examine the impact of PAD on financial performance in more detail, including the mechanisms by which PAD influences financial performance.
  3. Comparing the financial performance of local governments: Future studies can compare the financial performance of local governments in different regions to identify best practices and areas for improvement.
    Frequently Asked Questions (FAQs) on the Effect of Profit Sharing Funds, Economic Growth, and Capital Expenditure on Financial Performance with Local Original Income as a Moderating Variable in the District/City Government in North Sumatra Province

Q: What is the main objective of this study? A: The main objective of this study is to analyze the effect of profit sharing funds, economic growth, and capital expenditure on financial performance, with Regional Original Revenue (PAD) as a moderating variable in the district/city government in North Sumatra Province.

Q: What is the population studied in this research? A: The population studied in this research includes all regencies/cities in North Sumatra Province recorded in the North Sumatra Regional Revenue and Expenditure Budget Report (APBD).

Q: What is the sampling technique used in this study? A: The sampling technique used in this study is purposive sampling, which produced a total sample of 95 districts/cities.

Q: What are the data analysis methods used in this study? A: The data analysis methods used in this study include descriptive statistical analysis, classical assumption tests, simple linear regression analysis, and multiple linear regression analysis with interaction tests.

Q: What are the main findings of this study? A: The main findings of this study are that (1) profit sharing funds, economic growth, and capital expenditure have a positive influence on direct financial performance, and (2) interaction of Regional Original Revenue is proven to have a positive influence on the relationship between profit sharing funds, economic growth, and capital expenditure with financial performance.

Q: What is the role of local revenue as a moderating variable in this study? A: Local revenue is proven to have a positive influence on the relationship between profit sharing funds, economic growth, and capital expenditure with financial performance. This means that areas with high PAD can maximize the positive effects of profit sharing funds, economic growth, and capital expenditure on financial performance.

Q: What is the importance of sustainable economic growth in this study? A: Sustainable economic growth is a key factor in improving financial performance. When the economy grows, regional income will also increase, so that local governments have more resources to be invested in development.

Q: What are the recommendations of this study? A: The recommendations of this study are that local governments in North Sumatra Province must focus more on strengthening PAD capacity, good capital expenditure management, and encouraging sustainable economic growth to achieve the desired results.

Q: What are the limitations of this study? A: The limitations of this study include (1) secondary data, (2) purposive sampling, and (3) limited scope.

Q: What are the future research directions of this study? A: The future research directions of this study include (1) investigating the effect of other variables, (2) examining the impact of PAD on financial performance, and (3) comparing the financial performance of local governments in different regions.

Q: What are the implications of this study for policy makers and practitioners? A: The implications of this study for policy makers and practitioners are that they must focus on strengthening PAD capacity, good capital expenditure management, and encouraging sustainable economic growth to achieve the desired results.

Q: What are the contributions of this study to the existing literature? A: The contributions of this study to the existing literature are that it provides new insights on the effect of profit sharing funds, economic growth, and capital expenditure on financial performance, with Regional Original Revenue (PAD) as a moderating variable in the district/city government in North Sumatra Province.