From vision to outcomes: How government leadership and foresight shape national development through institutional channels

Corruption in government organizations is an important and relevant topic to study because of its impact on the state in terms of financial losses and a decrease in the quality of human development. This study is also relevant because previous analyses are still limited in their modeling and measuring comprehensive fiscal decentralization variables. This study aims to examine the effect of fiscal decentralization and quality of government on the level of corruption and the impact of corruption on the human development index. The sample of this paper comprises 113 local governments on the island of Java, Indonesia, for the period 2015–2018. Statistical testing was carried out using Partial Least Squares-Structural Equation Modeling (PLS-SEM). The test results show that fiscal decentralization has a positive effect on corruption with a path coefficient of 0.100 and is significant at 5% alpha. Likewise, poor governance (proxied by internal control weaknesses) has a positive effect on the level of corruption with a coefficient of 0.062 and is significant at an alpha of 10%. The results of the PLS-SEM test also show that corruption has a negative impact on the human development index with a coefficient of –0.206 and is significant at 1% alpha. The practical significance of this study is the importance of the internal control system reliability as a complementary variable for fiscal decentralization to prevent corruption.

Capital inflow into local bond markets helps countries with infrastructure financing, funding fiscal deficit, enhancing bond market liquidity, and diversifying investment portfolios globally. This study aims to assess the impact of institutional quality and capital account openness on capital inflow into Asian local bond markets for the period 2002–2023. For reflecting Asian bond markets, seven countries, namely, China, Malaysia, South Korea, Japan, the Philippines, Indonesia, and Thailand, have been considered. The rule of law, regulatory quality, control of corruption, voice & accountability, political stability, and government effectiveness indices are the various proxies considered in this study to measure the different aspects of institutional quality. Further, the Chinn-Ito index is employed to measure capital account openness. Fixed effect, random effect, and pooled data ordinary least squares are employed as different forms of panel data estimation methods in this study. Moreover, Breusch-Pagan LM and Hausman tests are performed to select the most efficient estimation method. This study reveals that the rule of law, regulatory quality, and control of corruption have a positive influence on capital inflow at a 5% significance level and political stability at a 1% significance level. In contrast, capital account openness has a negative impact at a 1% significance level. However, neither voice & accountability nor government effectiveness have a significant influence over capital inflow. These findings suggest improving the rule of law and regulatory quality, creating policies for political stability, stringent acts against corruption, and controlling capital account openness to encourage capital inflow into local bond markets.

The study provides empirical evidence on the cost implications of socially responsible investing (SRI) in relation to Environmental, Social, and Governance (ESG) preferences. Specifically, it examines whether socially responsible investors incur higher costs to meet non-pecuniary goals and how government involvement can offer rewards to socially responsible investors in supporting the realization of the United Nations’ Sustainable Development Goals (SDGs). Using panel data regression, this study analyzes ESG scores and financial and return data of 1,450 firm-year observations in ASEAN-5 countries over the period 2015–2022. The findings reveal that firms implementing ESG practices experience an increase in their cost of capital (CoC), supporting the notion that ESG investment requires a sacrificial cost. Even firms with low operational risks face rising CoC when implementing ESG principles. However, the study also finds that firms located in countries with better government effectiveness and stronger control of corruption benefit from a reduction in CoC, despite ESG implementation. Conversely, country risks, particularly those related to environmental pollution, exacerbate the CoC for firms adhering to ESG criteria. Overall, the results suggest that while country-level governance can reward socially responsible investors by mitigating CoC, country risks such as pollution pose additional burdens, highlighting the need for government intervention to incentivize SRI and align it with global sustainability goals.

Acknowledgment
This research was funded by the Indonesian Ministry of Education, Research, and Technology (DRTPM), Fundamental Research Grant in 2024 [0609.10/LL5-INT/AL.04/2024,359/D.01/LPPM/2024].