The Effect of Capital Expenditure and Balancing Funds on Regional Financial Performance Through Regional Original Revenue

Abstrak

This study aims to examine the effect of capital expenditure and balancing funds on regional financial performance, with regional original revenue serving as a mediating variable. The research encompasses 12 regencies and 3 cities in the provinces of Maluku and North Maluku. This study employs a quantitative approach utilizing a census sampling method. Secondary data were obtained from the Budget Realization Reports (LRA) published by the Supreme Audit Agency (BPK) of the Republic of Indonesia for the period 2020-2023, yielding 60 observational data points. Data analysis was conducted using the Partial Least Square (PLS) method with WarpPLS 8.0 software at a significance level of 5%. Regional financial performance was measured using two key metrics: the effectiveness ratio of regional original revenue and the fiscal decentralization degree ratio. The empirical findings reveal that: (1) Capital expenditure demonstrates a significant positive effect on regional original revenue (coefficient = 0.179; p = 0.027); (2) Balancing funds exhibit a significant positive effect on regional original revenue (coefficient = 0.449; p < 0.001); (3) Capital expenditure shows a significant positive effect on regional financial performance (coefficient = 0.190; p = 0.021); (4) Balancing funds do not significantly affect regional financial performance (coefficient = 0.087; p = 0.172); (5) Regional original revenue demonstrates a significant positive effect on regional financial performance (coefficient = 0.870; p < 0.001). The study establishes that regional original revenue mediates the relationship between capital expenditure and regional financial performance, as well as the relationship between balancing funds and regional financial performance. These findings indicate that enhancements in capital expenditure and balancing funds can improve regional financial performance through the intermediary mechanism of increasing regional original revenue. The research model demonstrates robust predictive capability with an R-squared value of 75.8% for the regional financial performance variable.