THE RELEVANCE OF ACCOUNTING INFORMATION AND FINANCIAL DISTRESS OF LOCAL GOVERNMENT IN EAST JAVA

Financial distress is an inability of local government to give public services appropriate with minimum standards of service caused by lack of funds. This condition is a negative signal of local government because reflects bad government’s performance. The aim of this research is examining accounting information relevance to financial distress of local government in East Java. Accounting information relevance is measured by ROA, POSGW, PERGW, CLGW, CL and DTR. Whereas, local government’s financial distress is measured by DSCR based on the decree issued by the government No. 54 year 2005 concerning regional loans. The sample of this research is local government in East Java both counties and cities. Census method is used to collect the samples because every element in the population is used as samples. Pearson’s correlation product is used to analyze the data. The statistical test result shows that POSGW, CLGW, CL and DTR have a strong enough relationship and unidirectional to DSCR. This result is in line with agency theory which states that local government will seek to minimize financial distress condition by optimizing their financial performance. It can be concluded that accounting information relevance has a relationship to local government’s financial distress.