Financial performance of Malaysian local authorities: A trend analysis

The main objective of this study is to analyze the financial performance of the Malaysian local authorities (LAs). The performance is measured in three different categories, fiscal-year balance, short-term liquidity, and long-run solvency. Further, this study attempts to examine whether there is any difference in the performance of each indicator used among the three groups of the LAs, namely city councils, municipal councils and district councils. The sample consists of 12 LAs in one of the developed states in Malaysia over a seven-year period of 2000 to 2006. The results show unfavorable trends represented by most of the indicators used and subsequently concluded that the LAs had performed poorly in all of the three categories. The results of “between groups” analysis show that there is a significant variation in performance among the types of the LAs. The significant difference is found on three of indicators used, namely self-income ratio, the average collection period and finally the collecting efficiency ratio. The city councils are found to be the best performers amongst all. The unfavorable performance shown in these three categories of indicators, certainly indicate that there is some form of significant leakage in the LAs' financial system. Overall, the findings of this study could effectively be used as a road map to assist the council members, the senior staff and other stakeholders, such as the federal and the state government in evaluating their success and steering the organization's financial performance and sustainability.