The relationship between organizational characteristics and the quality of local government financial statements

Abstract

This study investigates the relationship between organizational characteristics and the quality of financial statements in Malaysian local government. Organizational characteristics, including status, size, financial stability, tax revenue collection efficiency, and level of competence, were examined to discern their impact on mandatory information disclosure in local government financial statements. Data were collected from 71 local governments in Peninsular Malaysia, representing nearly 74% of the total population, using a combination of secondary data from audited financial reports and official documents, as well as structured questionnaires. The results indicate that tax revenue collection efficiency and the level of competence had a significant positive relationship with financial statement quality. Conversely, organizational characteristics related to status, size, and financial stability did not significantly impact financial statement quality. This implies the greater significance of human resources, precisely tax revenue collection efficiency and account officers’ competence, in shaping local government financial statement quality in Malaysia. These findings support the stewardship theory, confirming the connection between specific organizational characteristics and financial statement quality. However, limitations include relying solely on secondary data and facing certain data collection constraints. Future research can enhance these findings by exploring additional factors through in-depth qualitative or case studies.