A path analysis on the effect of human development index, financial performance, and macroeconomic factors on local government financial accountability and transparency in Indonesia

Abstract

The research investigates the direct and indirect relationships among the Human Development Index (HDI), Regional Original Revenue (PAD), General Allocation Fund (DAU), inflation, Gross Regional Domestic Product (GRDP), and local government accountability, with transparency as an intermediary variable. Based on institutional theory, stakeholder theory, and agency theory, it presents an original integrative conceptual approach on how socioeconomic and fiscal variables interact with financial affairs and governance within the Indonesian fiscal system. A quantitative explanatory research approach and path analysis were conducted based on a sampled secondary data source gathered from 33 Indonesian provinces from 2014 to 2024. The results show that HDI and DAU significantly improve local government accountability variables directly and indirectly via transparency. Moreover, PAD contributes significantly to transparency but not accountability. By contrast, inflation and GRDP have no significant effects on transparency but have slightly considerable direct effects on accountability. The results confirm transparency’s very significant and direct effects on accountability, emphasizing transparency and openness within financial statements. It shows fiscal transfers and developments are most effectively made and on accountability mediated and facilitated by transparency. It develops an original integrative theoretical structure among institutional theory, stakeholder theory, and agency theory, illustrating fiscal and developmental forces and factors, and strengthening and maintaining transparency and accountability within the Indonesian fiscal system.