The effect of human capital and physical capital on regional financial condition: the moderating effect of management control system

Abstract

This study examines the effect of Human Capital and Physical Capital on Regional Financial Condition with a Management Control System as moderator. Participants were employees of the Regional Financial and Asset Management Directorates located in three major cities in the province of South Sulawesi, Indonesia. The participants were recruited from three different regions resulting in 75 participants in a three-wave data collection procedure. Four measures were developed (i.e. Human Capital, Physical Capital, Management Control System, and Financial Condition), which were constructively valid and reliable for research purposes. The results showed that Human Capital and Physical Capital directly influenced the Financial Condition. The effect of Human and Physical Capital was moderated by the Management Control System. Management Control System negatively moderated the effect of Human Capital while at the same time also positively moderated the effect of Physical Capital on Financial Condition. This study collected participant's perceptions towards the study variables without any further investigation to the objective measures. Although some scholars may find this as the lack of evidence against the actual Financial Condition, acknowledging experts' perceptions should provide a better understanding of the experienced Financial Condition. Various studies have investigated some factors which may affect Financial Condition. However, this study proposed an examination of the role of the Management Control System. In this case, a capital that is owned by the financial organisations cannot provide a direct impact on the Financial Condition without the role of the Management Control System.

Keywords

• Human capital
• Physical capital
• Management control system
• Financial condition
• Indonesia