The Effect of Regional Financial Ratios on Budget Implementation Performance: An Empirical Study of Districts/Cities in Indonesia for the Period 2018-2023

This study examines the influence of regional financial ratios on budget implementation performance in Indonesian local governments within the framework of fiscal decentralization. Using the Stewardship Theory as a theoretical foundation, we analyze how fiscal independence and financial efficiency affect the ability of districts/municipalities to translate budget plans into concrete programs. This study used panel data from 250 districts/cities throughout Indonesia for the period 2018-2023, resulting in 1,500 balanced observations. This analysis uses a Fixed Effects Model to control for unobserved regional heterogeneity. The results reveal a counterintuitive finding: the fiscal independence ratio does not significantly affect the performance of budget implementation (coefficient = 0.008380, p = 0.7395), contrary to conventional assumptions about fiscal autonomy. In contrast, the financial efficiency ratio showed a strong positive effect on implementation performance (coefficient = 0.193478, p < 0.001), suggesting that resource optimization capabilities are more important than resource availability. These findings suggest that effective management in local government is better realized through efficient financial management than revenue-generating autonomy. This study contributes to the fiscal decentralization literature by challenging the assumption of an autonomy-performance link and provides practical implications for policymakers to prioritize capacity building in financial management rather than increasing fiscal independence. The results support a paradigm shift from a quantity-focused approach to a quality-focused approach in regional financial management in Indonesia's decentralized governance system.