The Importance of Good Governance and Financial Performance for Community Welfare: an Empirical Evidence from Indonesia

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Khairudin, Maria Septijantini Alie, Rosmiati Tarmizi, Indrayenti, Aminah

Résumé

Public welfare can only be realized if local governments have good governance and good financial performance. This research aims to photograph the implementation of good governance, financial performance, welfare and to test empirically the effect of good governance and financial performance on welfare in 34 provincial governments in Indonesia. Good governance is measured by the Indonesia Governance Index (IGI), financial performance is measured by the financial independence of ratio and financial effectiveness of ratio, while welfare is measured by the Human Development Index. The test results show that (1) the implementation of good governance, financial performance and welfare in Indonesia has not been so good (2) good governance is eviden to significantly improve welfare; (3) the performance of independence is eviden to significantly improve welfare; (4) the performance of effectiveness is eviden to significantly improve welfare. The results of this research have supported stakeholder theory, where local government as an organization must provide benefits to the community as a stakeholder. This finding is empirical evidence of the importance of good governance and financial performance for local government organizations in order to accelerate the improvement of  welfare.

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