THE INFLUENCE OF GOOD GOVERNANCE ON THE FINANCIAL PERFORMANCE OF LOCAL GOVERNMENT AGENCIES IN BONTANG CITY WITH RISK MANAGEMENT AS A MEDIATING

Abstract

The financial performance of local governments plays a critical role in supporting development objectives and improving the quality of public services. However, in practice, challenges such as budget realization deviations, weak accountability, and the limited integration of risk management highlight a research gap in understanding how governance and risk practices jointly influence financial performance. This study aims to examine the effect of Good Governance (GG) on the financial performance of local government agencies in Bontang City, with Risk Management (RM) as a mediating variable. A quantitative approach was employed using Structural Equation Modeling (SEM) through WarpPLS 3.0. The population consisted of 31 government agencies, all of which were included as the research sample through a census method with secondary data such as financial reports, performance reports, and audit evaluations from BPKP and the Regional Inspectorate. The results reveal that GG has a positive and significant effect on RM (β = 0.397; p < 0.05), but does not have significant affect on financial performance (β = -0.211; p = 0.150). Similarly, RM does not significantly influence financial performance (β = 0.120; p = 0.139) and does not mediate the relationship between GG and financial performance (p = 0.135). These findings suggest that while the application of good governance principles enhances risk management practices, improvements in financial performance are more strongly influenced by other factors such as leadership, organizational culture, and human resource competence. The study concludes that integrating GG and RM with broader organizational strategies is essential for strengthening financial performance in local governments.