English Analyzing the Role of Government Size in the Relationship Between Capital Expenditure Effectiveness, Audit Opinions, and Fiscal Performance
Abstract
Improving the effectiveness and accountability of local financial management is a major concern in Indonesia’s fiscal decentralization policy. Local government financial performance serves as a critical benchmark in evaluating fiscal management under regional autonomy. In practice, many local governments remain highly dependent on central transfers and fail to optimize capital spending due to weak budget planning, supervision, and institutional capacity. This study investigates the effects of capital expenditure and audit opinion on local government financial performance, with government size as a moderating variable. The study focuses on eight regencies and cities in Banten Province from 2015 to 2023, using a quantitative approach with secondary data analyzed through multiple linear regression and interaction analysis. The results show that capital expenditure has a negative and significant effect on financial performance, indicating inefficiency in managing long-term investments. Audit opinion has no significant influence, either directly or when moderated. However, government size strengthens the negative effect of capital expenditure on performance. This study addresses a gap in empirical literature by incorporating government size as a moderating variable to explain prior inconsistencies and to offer a deeper understanding of fiscal capacity in decentralized governance. The findings highlight the importance of improving fiscal and institutional quality to ensure that capital spending effectively contributes to sustainable local financial independence.
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