Transformational Leadership and Performance: Self-Efficacy and Work Engagement as Moderating Variables

Introduction

The state financial management covers planning, implementation, accountability, and supervision. The accountability of state financial management is communicated through financial statements. In this regard, the Indonesian Government has reformed its public sector accounting practices by adopting new public management (Suparman, Siti-Nabiha, & Phua, 2015), i.e., implementing the accrual-based accounting system, to enhance the information quality of its financial reporting, accountability, and transparency of public sector financial management. Thus, accrual accounting improves accountability in public sector entities (Connolly & Hyndman, 2006).

The preparation and presentation of financial statements to achieve accountability and transparency in state/ local financial management indicate the performance of financial management units (The Law of Republic of Indonesia No. 17 of 2003). Financial statements are prepared to provide relevant information on financial positions and all transactions to evaluate the performance of reporting entities (Government Regulation No. 71 of 2010). Governments’ financial statements are the component of the performance reports of governmental agencies that inform their performance (Presidential Regulation Number 29 of 2014).

Based on the audit reports of the Audit Board of the Republic of Indonesia (BPK – Badan Pemeriksa Keuangan) in 2015 of 112 local governments to implement the accrual-based Governmental Accounting Standards, local governments have not effectively facilitated accrual-based financial reporting (BPK RI, 2016). Numerous problems related to policies, information technology, and human resources to support financial reporting indicate the argument (BPK RI, 2016). Governments did not fully implement the accrual basis (Paulsson, 2006), and consequently, the results were unsatisfactory (Anessi-Pessina & Steccolini, 2007). The implementation of accounting and budgeting system changes from cash basis to accrual basis in central, provincial, and municipal governments is lengthy (Hoek, 2005) and gradual (Hyndman & Connolly, 2011).

The most significant factors in the accrual-based accounting implementation in Indonesia are leadership commitment and political parties’ supports to motivate the heads of Regional Work Units (SKPD – Satuan Kerja Perangkat Daerah) to adopt accrual accounting basis in preparing financial statements (Suparman et al., 2015). The heads of SKPD have the authority to use resources in their organizations (Isa, Saleh, & Jusoh, 2011) that require transformational leadership (Bass, Avolio, Jung, & Berson, 2003) to better guide entities in adopting accrual-based accounting.

Transformational leadership positively affects team and employees’ performance (Dionne, Yammarino, Atwater, & Spangler, 2004; Piccolo & Colquitt, 2006; Weller, Süß, Evanschitzky, & von Wangenheim, 2019). Further studies also find that self-efficacy (Afsar & Masood, 2017; Liao & Chuang, 2007; Walumbwa & Hartnell, 2011) and work engagement (Breevaart et al., 2014; Ghadi, Fernando, & Caputi, 2013) have positive effects on employees’ performance. Similarly, the quality of leaders- subordinates relationships affects work engagement and work performance (Breevaart, Bakker Arnold, Demerouti, & van den Heuvel, 2015). Besides, trust between leaders and subordinates is significantly associated with work engagement that is further mediated by the orientation of learning purpose on work performance and innovative work behavior (Chughtai & Buckley, 2011). Further, work engagement and employees’ work engagement creativity have impacts on employees’ performance (Anitha, 2014; Du, Zhang, & Chen, 2016; Gorgievski, Moriano, & Bakker, 2014; Robertson, Birch, & Cooper, 2012).