Analysis of the Effect of Regional Financial Performance on Regional
Economic Growth in Indonesia Year 2012-2016
Mieke Nadia Rossa, Sulistyo Sulistyo and Eris Dianawati
Program Studi Akuntansi, Universitas Kanjuruhan Malang, Malang, Indonesia
Keywords: Financial Performance, Independence Ratio, Dependency Ratio, Effectiveness Ratio, Regional Economic
Growth.
Abstract: Economic growth of a region can be seen from the financial capacity of the region in financing its own
activities, the better the financial capacity of the region will further encourage regional economic growth.
The purpose of this study is to test and obtain empirical evidence of the influence of financial performance
on economic growth in cities and districts in East Java Region and to know how the difference between
economic growth and financial performance between the city and district of East Java Region 2012-2016.
The sample in this research are 6 districts, and 3 cities located in east java area with research object that is
financial performance in the form of independence ratio, dependency ratio, effectiveness ratio, and
economic growth. Determination of the sample is done by using purposive sampling method and the method
used in this research is done by multiple linear regression analysis and T-test. Based on the results of this
study, financial performance in the form of independence ratio and effectiveness ratio showed a significant
positive impact on economic growth, while the dependency ratio has no significant effect on economic
growth. Further economic growth between city and district has significant difference, financial performance
in the form of independence and dependency ratios have significant differences between city and district,
while the financial performance of the ratio of effectiveness has no significant difference between the city
and district in East Java Region in 2012- 2016.
1 INTRODUCTION
Economic growth of a region can be seen from the
financial capacity of the region in financing its own
activities, the better the financial capacity of the
region will further encourage regional economic
growth. Local financial capacity can be assessed or
measured by local financial performance (Ardi,
2008; Aristovnik, 2012; Bose et al., 2007).
East Java has 38 Cities and Districts, and is the
province that has the most districts and cities in
Indonesia. However the number of districts and
cities does not guarantee that economic growth in
the province has not decreased (Arsa and Setiawina,
2015; Wuku, 2015). Lately, the percentage of
economic growth in East Java has been fluctuated.
Here is the data of East Java economic growth last 5
years starting from 2012-2016.
Table 1: East Java Economic Growth Period 2012-2016
(BPS, 2013).
Economic Growth of East Java period 2012-2016
in Billion Rupiah
Year PDRB
AHDK
Economic Growth
2012 1124464.64 6.64%
2013 1192789.8 6.08%
2014 1262684.5 5.86%
2015 1331394.99 5.44%
2016 1405236.11 5.55%
From the table 1 shows that the percentage of
economic growth in East Java in 2013 has decreased
until 2015, and in 2016 the percentage of economic
growth increased although not significant. The
phenomenon of economic growth instability in East
Java along with the declining quality of financial
performance in Cities and Districts located in the
province of East Java.
Financial performance in East Java province still
needs to be improved. Based on the report of the
376
Rossa, M., Sulistyo, S. and Dianawati, E.
Analysis of the Effect of Regional Financial Performance on Regional Economic Growth in Indonesia Year 2012-2016.
In Proceedings of the Annual Conference on Social Sciences and Humanities (ANCOSH 2018) - Revitalization of Local Wisdom in Global and Competitive Era, pages 376-381
ISBN: 978-989-758-343-8
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

audit result of the 2016 regional government's
finance by BPK Jatim, there are still many cities and
districts in eastern Java whose financial performance
has decreased and cannot be said good and needs to
be improved again, such as Madiun, Tulungagung,
Probolinggo, Sampang, Sumenep, Nganjuk district,
and others because they get the WDP predicate (fair
with exceptions) (BPKP, 2012). This is in line with
the economic growth of East Java which recently
also experienced instability.
Based on the phenomenon that occurred in East
Java Province above and previous research is diverse
then researchers want or are interested in doing a
study on "Analysis of the Effect of Financial
Performance on Regional Economic Growth in
Regency and City Region East Java Period 2012 -
2016"
The formulation of problem in this research are:
(1) How is the effect of financial performance to
economic growth in East Java (2) How is the effect
of financial performance in the form of
independence ratio to economic growth in East Java
(3) How is the effect of financial performance in the
form of dependency ratio to economic growth in
East Java (4) How is the influence of financial
performance in the form of ratio of effectiveness to
economic growth in East Java (5) How is the
difference of economic growth between city and
district in east java (6) How is the difference of
financial performance between city and regency in
East Java.
The purpose of this study is to determine: (1) the
effect of financial performance on economic growth
in East Java and how much influence. (2) the effect
of financial performance in the form of
independence ratio to economic growth in East Java
and how big the effect is. (3) the influence of
financial performance in the form of dependency
ratio to economic growth in East Java and how big
the effect is. (4) the effect of financial performance
in the form of ratio of effectiveness to economic
growth in East Java and how big the effect is. (5) the
difference of economic growth in city and district in
East Java. (6) the difference of financial
performance between city and district in East Java.
Based on the theory and the results of previous
research, it can be formulated hypothesis as follows:
 H1: Financial performance simultaneously
affects regional economic growth;
 H2: Ratio of regional autonomy positively
affects regional economic growth;
 H3: Regional financial dependency ratio
negatively affects regional economic growth;
 H4: PAD Effectiveness Ratio positively
affects regional economic growth.
2 METHOD
This study used secondary data sources with data
collection techniques documentation that is data
collection techniques in the form of local financial
statements of 2013-2016 obtained from the website
BPKAD city districts respectively
www.bpkad.go.id. While the report of economic
growth district city area East Java can be seen at
www.bps.jatim.go.id.
The samples used are 9 districts / cities, 6 of
them are districts and 3 cities. The sample is chosen
based on sampling criteria with probability sampling
method with purposive sampling technique from the
population of 38 districts / cities, so the data are
examined for five periods for about 45 data.
This study used multiple linear regression
analysis to determine the effect of financial
performance in the form of independence ratio,
dependency, and effectiveness on regional economic
growth. Meanwhile, to know the difference of
economic growth and financial performance
between city and district, technique of T-test
analysis with Mann-Whitney and Kruskall-Wallis
type were used. Operational definitions of variables
used are variable (X) of financial performance
consisting of several ratios:
2.1 Ratio of Regional Financial
Independence (X1)
(1)
2.2 Regional Financial Dependency
Ratio (X2)
(2)
2.3 Ratio of Local Original Income
Effectiveness (X3)
(3)
Variable (Y) regional economic growth can be
calculated by the formula:
Analysis of the Effect of Regional Financial Performance on Regional Economic Growth in Indonesia Year 2012-2016
377

(4)
3 RESULTS AND DISCUSSION
3.1 Classic Assumption Test
This test was conducted in several analyzes namely
normality test, multicollinierity test,
heteroscedasticity test, and autocorrelation test.
3.2 Multicollinearity Test
Table 2: Multicollinearity Test Results.
Coefficients
a
Model
Collinearity Statistics
Tolerance VIF
1 (Constant)
X1 .975 1.025
X2 .973 1.028
X3 .996 1.004
a. Dependent Variable: Y
Source: SPSS 22 output (researchers processed data, 2018).
The multicollinearity test shows that all variables
have VIF values less than 10, hence it shows that no
relationship between independent variables in the
regression model used or research data does not
contain symptoms of multicollinearity.
3.3 Autocorrelation Test
Table 3: Autocorrelation Test Results.
Model Summary
b
Model R
R
Square
Adjusted
R Square
Std. Error
of the
Estimate
Durbin-
Watson
1
.730
a
.532 .498 .01962 1.950
a. Predictors: (Constant), X3, X1, X2
b. Dependent Variable: Y
Source: SPSS 22 output (researchers processed data, 2018).
The autocorrelation test showed from all three
regressions that the Durbin-Watson value lies
between 1.55 and 2.46. That is, in the regression
model used there is no correlation between the tester
errors of t period (current) with errors of period t-1
(previous).
3.4 Normality Test
Table 4: Normality Test Results.
One-Sam
p
le Kolmo
g
orov-Smirnov Test
Unstandardized
Residual
N 45
Normal
Parameters
a,b
Mean .0000000
Std. Deviation .01894052
Most Extreme
Differences
Absolute .082
Positive .082
Negative -.073
Test Statistic .082
As
y
m
p
. Si
g
.
(
2-tailed
)
.200
c,d
a. Test distribution is Normal.
Source: SPSS 22 output (researchers processed data, 2018).
The normality test of all three regressions shows
that the Asymp.Sig value is greater than 0.05. That
is, in the regression used, the confounding or
residual variable has a normal distribution.
3.5 Heteroscedasticity Test
Heteroscedasticity test with Glejser approach shows
that each independent variable has a significance
value greater than 0.05, meaning that the regression
model used does not occur heteroscedasticity.
Table 5: Heteroscedasticity Test Results.
Coefficients
Model Si
g
.
1
(
Constant
)
.000
X1 .362
X2 .508
X3 .064
a. Dependent Variable: RES_2
Source: SPSS 22 output (researchers processed data, 2018).
Based on the results of Glejser test above each
variable has a sig value greater than 0.05, then in
this study did not occur heteroscedasticity.
3.6 Regression Analysis
Regression analysis used in this study is multiple
linear regression, this analysis is used to obtain a
comprehensive picture of the influence of
independent variables to the dependent variable.
Here are the results of multiple regression analysis.
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378

Table 6: Results of Multiple Linear Regression Analysis.
Coefficients
a
Model
Unstandardized
Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta
1 (Constant)
.166 .020 8.462 .000
X1
.024 .008 .317 2.927 .006
X2
-.018 .010 -.202 -1.865 .069
X3
.111 .019 .612 5.716 .000
a. Dependent Variable: Y
Source: SPSS 22 output (researchers processed data, 2018).
Y= 0,166+0,024X
1
-0,018X
2
+0,111X
3
+e (5)
 Constant value of 0.166 means that if other
variables are constant, then economic growth
will increase by 0.166%;
 The value of regression coefficient of
Independence Ratio (X1) is positive of 0,024
means that the Ratio of Independence
increases by 1% assuming other variables are
constant, then economic growth will increase
by 0,024%;
 The value of regression coefficient of
Financial Dependency Ratio (X2) is negative
of -0.018 has meaning if the Financial
Dependency Ratio increased by 1% assuming
other variables are constant, the regional
economic growth will decrease by 0.018%;
 The value of regression coefficient of PAD
Effectiveness Ratio (X3) is positive of 0.111
has meaning if PAD Effectiveness Ratio
increased by 1% with assumption other
variables are constant, hence economic growth
area will increase about 0,111%.
3.7 F Test (simultaneous)
Table 7: Result of simultaneous significance.
ANOVA
a
Model
Sum of
Squares df
Mean
Square F Sig.
1 Regressio
n
.018 3 .006
15.55
6
.000
b
Residual .016 41 .000
Total .034 44
a. Dependent Variable: Y
b. Predictors: (Constant), X3, X1, X2
Source: SPSS 22 output (researchers processed data, 2018).
The results of the simultaneous significance test
show that the significance f is smaller than the
significiance level, which is 0,000 <0.05 or alpha
5%. This means that simultaneously variable
independence ratio (X1), financial dependency ratio
(X2), and PAD Effectiveness ratio (X3) have
significant effect on regional economic growth.
Then Ha.1 is accepted (supported by data).
3.8 T Test (partial)
3.8.1 H
2
: The Effect of Financial
Performance in the form of Ratio of
Independence on Economic Growth
The significance value of t test on the independence
ratio variable (X1) that is equal to 0.006 is smaller
than alpha 0.05 (5%). This means that the variable
(X1) or independence ratio has a significant effect
on regional economic growth. Beta for X1 = 0.317
indicates the level of sensitivity of the regional
independence ratio on regional economic growth,
where the effect is positive (in line). Then Ha.2 is
accepted (supported by data).
3.8.2 H
3
: The Effect of Financial
Performance in the Form of Ratio of
Dependency on Economic Growth
The significance value of t test on dependency ratio
variable (X2) is 0,069 smaller than alpha 0,05 (5%).
This means that the variable (X2) or partial
dependency ratio has no significant effect on
regional economic growth. Beta for X2 = -0.202,
indicating the degree of sensitivity of regional
dependency ratio to regional economic growth,
where the influence is negative (counterclockwise).
Hence Ha.3 states that the ratio of financial
dependence negatively influenced is rejected (not
supported by data).
3.8.3 H
4
: The Influence of Financial
Performance as a Ratio of
Effectiveness on Economic Growth
The significance value of t test on the effectiveness
ratio variable (X3) is 0.000 greater than alpha 0.05
(5%). This means that the variable (X3) or partial
effectiveness ratio significantly affects regional
economic growth. Beta for X3 = 0.612 indicates the
level of sensitivity ratio of regional effectiveness to
regional economic growth, where the influence is
positive (in line). Hence, Ha.4 states that the
effectiveness ratio is positively accepted (supported
by data).
Analysis of the Effect of Regional Financial Performance on Regional Economic Growth in Indonesia Year 2012-2016
379

3.9 Determination Coefficient Test
(adjusted R
2
)
Table 8: Coefficient Determination Test Results.
Model Summary
b
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
1 .730
a
.532 .498 .01962
a. Predictors: (Constant), X3, X1, X2
b. Dependent Variable: Y
Source: SPSS 22 output (researchers processed data, 2018).
The result of determination coefficient test shows
that the value of Adjusted R2 is 0,498 or 49,8%. In
this case can be interpreted that ability of
independent variable that is independence ratio,
dependency ratio, and effectiveness ratio, explaining
regional economic growth value equal to 49,8%, and
the rest equal to 50,2% explained by variable which
is not examined in this research.
3.10 T Tests of Economic Growth
Between City And District
3.10.1 Normality Test
Table 9: Normality Test.
Tests of Normality
GROUP
Shapiro-Wilk
Statistic df Sig.
PDRB 1 .569 30 .000
2 .871 15 .035
a. Lilliefors Significance Correction
Source: SPSS 22 output (researchers processed data, 2018).
Note: Group 1 = District, Group 2 = City.
Based on normality test results note that
significant value can be seen in the sig column. That
is in the districts of 0.000 and the city of 0.000 and
both are smaller than <0.05. That means that data
between cities and districts is not normally
distributed. Thus the parametric test cannot be done,
because the data is not normally distributed and in
this study using non-parametric test with Mann-
Whitney test.
3.10.2 Mann-Whiteney Test
Table 10: Mann-Whitney Test.
Test Statistics
a
Economy Growth
Mann-Whitney U 147.000
Wilcoxon W 612.000
Z -1.878
Asymp. Sig. (2-tailed) .046
a. Grouping Variable: KELOMPOK
Source: SPSS 22 output (researchers processed data, 2018).
Based on the result of Mann-Whitney statistic
output, Asymp. value Sig. (2-tailed) of 0.046, and
smaller than the probability value of 0.05. Then the
decision that can be taken is that if the value of
significance or sig. (2-tailed) is less than <0.05 then
there is a difference. So it can be concluded that
economic growth between city and district is
different.
3.11 T Test of Financial Performance
between City and Regency
3.11.1 Normality Test
Table 11: Normality Test with Shapiro-Wilk.
Test of Normally
Group Shapiro-Wil
k
Explanation
Statistic df Sig.
Independence 1 0.886 30 0.004 abnormal
2 0.783 15 0.002 abnormal
Dependency 1 0.75 30 0 abnormal
2 0.873 15 0.37 abnormal
Effectiveness 1 0.783 30 0 abnormal
2 0.926 15 0.241 normal
a. Liliefors Significance Correction
Source: SPSS 22 output (researchers processed data, 2018).
Based on the normality test the three variables do
not have normal data, while the effectiveness ratio
data on the city has a significant value of 0.241
which means greater than 0.05, the effectiveness
ratio data on the city is normally distributed. Even so
data between city and district cannot be tested by
parametric method because one of the data is not
normally distributed.
3.11.2 Kruskall Waliss Test
Table 12: Result of Kruskal Waliss Test
Test Statistics
a,b
Independence Dependency Effectiveness
Chi-Square 26.301 4.388 1.568
df 1 1 1
Asymp. Sig. 0.000 0.036 0.211
Explanation Differen
t
Differen
t
No Differen
t
a. Kruskal Wallis Test
b
. Grouping Variable: Group
Source: SPSS 22 output (researchers processed data, 2018).
Based on the output results, it can be seen that
the ratio of independence in district and city has
significant difference. The dependency ratio on the
city and district has significant difference. While the
ratio of effectiveness in city and district is almost
equal or does not have a significant difference.
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380

4 CONCLUSION
Based on the results of this study, financial
performance in the form of independence ratio and
effectiveness ratio showed a significant positive
impact on economic growth, while the dependency
ratio has no significant effect on economic growth.
Further economic growth between city and district
has significant difference, financial performance in
the form of independence and dependency ratios
have significant differences between city and
district, while the financial performance of the ratio
of effectiveness has no significant difference
between the city and district in East Java Region in
2012- 2016.
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