COVID-19 Pandemic, Dividend Policy, and Stock Market Reaction: Evidence from the Manufacturing Companies in Indonesia

Powell Gian Hartono, Muhammad Yaasiin Raya

Abstract


This study aimed to examine the impact of the COVID-19 crisis on the dividend policy of Indonesia’s manufacturing companies and the stock market reaction to this corporate action in 2020. The purposive sampling technique was used to select 87 manufacturing companies to examine the impact of the crisis on dividend policy from 2014 to 2020, while the market reaction was tested on 42 companies. Data were analyzed using the dynamic panel data regression with the SYS-GMM estimation method, as well as the one sample T-test and the Wilcoxon sign-ranked tests. The findings showed that Indonesia’s manufacturing companies formulated a positive dividend policy during the COVID-19 pandemic. The stock market reaction to this corporate action was weak, meaning it became sluggish during a crisis. These results indicate that the effort to signal the market positively was ineffective. Therefore, companies must formulate corporate actions or other managerial policies to reduce capital market sluggishness in crisis. They should also implement an optimal dividend policy to increase their value to contribute to the Indonesian economy, specifically in crisis conditions, such as the COVID-19 pandemic.


Keywords


COVID-19 Pandemic Crisis; Dividend Announcement; Dividend Policy; Dividend Signaling Theory; Stock Market Reaction

Full Text:

PDF

References


Abdulkadir, R. I., Abdullah, N. A. H., & Woei-Chyuan, W. (2015). Dividend policy changes in the pre-, mid-, and post-financial crisis: evidence from the nigerian stock market. Asian Academy of Management Journal of Accounting and Finance, 11(2), 103–126. http://web.usm.my/journal/aamjaf/vol 11-2-2015/aamjaf110215_05.pdf

Ahmed, M. Y., & Sarkodie, S. A. (2021). COVID-19 pandemic and economic policy uncertainty regimes affect commodity market volatility. Resources Policy, 74, 102303. https://doi.org/10.1016/j.resourpol.2021.102303

Akhmadi, A., & Robiyanto, R. (2020). The Interaction Between Debt Policy, Dividend Policy, Firm Growth, and Firm Value. Journal of Asian Finance, Economics and Business, 7(11), 699–705. https://doi.org/10.13106/jafeb.2020.vol7.no11.699

Ali, H. (2022). Corporate dividend policy in the time of COVID-19: Evidence from the G-12 countries. Finance Research Letters, 46. https://doi.org/10.1016/j.frl.2021.102493

Altig, D., Baker, S., Barrero, J. M., Bloom, N., Bunn, P., Chen, S., Davis, S. J., Leather, J., Meyer, B., Mihaylov, E., Mizen, P., Parker, N., Renault, T., Smietanka, P., & Thwaites, G. (2020). Economic uncertainty before and during the COVID-19 pandemic. Journal of Public Economics, 191, 104274. https://doi.org/10.1016/j.jpubeco.2020.104274

Anwar, S., Singh, S., & Jain, P. K. (2017). Impact of Cash Dividend Announcements: Evidence from the Indian Manufacturing Companies. Journal of Emerging Market Finance, 16(1), 29–60. https://doi.org/10.1177/0972652716686238

Arellano, M., & Bond, S. (1991). Some Monte Tests of Specification for Panel Data: Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968

Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-D

Ashraf, B. N. (2021). Stock markets’ reaction to Covid-19: Moderating role of national culture. Finance Research Letters, 41(May 2020), 101857. https://doi.org/10.1016/j.frl.2020.101857

Athari, S. A., Adaoglu, C., & Bektas, E. (2016). Investor protection and dividend policy: The case of Islamic and conventional banks. Emerging Markets Review, 27, 100–117. https://doi.org/10.1016/j.ememar.2016.04.001

Baig, A. S., & Chen, M. (2022). Did the COVID-19 pandemic (really) positively impact the IPO Market? An Analysis of information uncertainty. Finance Research Letters Journal, 46, 102372. https://doi.org/10.1016/j.frl.2021.102372

Baker, M., Mendel, B., & Wurgler, J. (2016). Dividends as reference points: A behavioral signaling approach. Review of Financial Studies, 29(3), 697–738. https://doi.org/10.1093/rfs/hhv058

Baltagi, B. H. (2005). Econometric Analysis of Panel Data (3rd ed.). John Wiley & Sons, Ltd.

Bandiyono, A., & Amalia, P. (2021). The Effect of State Budget Ratification and Expenditure on The Indonesian Capital Market : An Empirical Study on The LQ 45 Index Shares. Jurnal Keuangan Dan Perbankan, 25(2), 379–399. https://doi.org/10.26905/jkdp.v25i2.5134

Bangun, N., Tjakrawala, F. X. K., Andani, K. W., & Santioso, L. (2017). The Effect of Financial Leverage, Employee Stock Ownership Program and Firm Size on Firm Performance of Companies Listed in Indonesia Stock Exchange. International Business and Accounting Research Journal, 1(2), 82. https://doi.org/10.15294/ibarj.v1i2.7

Baulkaran, V. (2019). Stock market reaction to green bond issuance. Journal of Asset Management, 20(5), 331–340. https://doi.org/10.1057/s41260-018-00105-1

Biørn, E. (2017). Econometrics of Panel Data: Methods and Applications (1st ed.). Oxford University Press.

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8

Bostanci, F., Kadioglu, E., & Sayilgan, G. (2018). Determinants of Dividend Payout Decisions: A Dynamic Panel Data Analysis of Turkish Stock Market. International Journal of Financial Studies, 6(4), 93. https://doi.org/10.3390/ijfs6040093

Cejnek, G., Randl, O., & Zechner, J. (2021). The COVID-19 Pandemic and Corporate Dividend Policy. Journal of Financial and Quantitative Analysis, 56(7), 2389–2410. https://doi.org/10.1017/S0022109021000533

Cepoi, C. (2020). Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil. Finance Research Letters, 36. https://doi.org/10.1016/j.frl.2020.101658

Conlon, T., & McGee, R. (2020). Safe haven or risky hazard? Bitcoin during the Covid-19 bear market. Finance Research Letters, 35(May), 101607. https://doi.org/10.1016/j.frl.2020.101607

Dang, C., (Frank) Li, Z., & Yang, C. (2018). Measuring firm size in empirical corporate finance. Journal of Banking and Finance, 86, 159–176. https://doi.org/10.1016/j.jbankfin.2017.09.006

Hardy, B. (2021). Covid-19 bank dividend payout restrictions: effects and trade-offs. In BIS Bulletin (Vol. 39). https://www.bis.org/publ/bisbull38.pdf

Hartono, P. G., Lestari, H. S., Wijaya, R., Hartono, A. B., & Tinungki, G. M. (2020). Likuiditas sebagai Prediktor Profitabilitas: Sebuah Studi Empiris pada Perusahaan Sektor Industri Manufaktur. DERIVATIF: Jurnal Manajemen, 14(2), 126–137. https://doi.org/10.24127/jm.v14i2.475

Hartono, P. G., & Matusin, A. R. (2020). Determinants of Dividend Policy of Real Estate, Property, and Building Construction Companies Listed in IDX with Unbalanced Panel Data Approach. TIJAB (The International Journal of Applied Business), 4(2), 139. https://doi.org/10.20473/tijab.v4.i2.2020.139-156

Hartono, P. G., Sari, W. R., Tinungki, G. M., Jakaria, & Hartono, A. B. (2021). The Determinants of Dividend Policy: an Empirical Study of Inconsistent Distribution of Dividends using Balanced Panel Data Analysis. Media Ekonomi Dan Manajemen, 36(2), 89–106. https://doi.org/10.24856/mem.v36i2.2023

Hauser, R. (2013). Did dividend policy change during the financial crisis? Managerial Finance, 39(6), 584–606. https://doi.org/10.1108/03074351311322861

Hung, N. T. (2021). Oil prices and agricultural commodity markets: Evidence from pre and during COVID-19 outbreak. Resources Policy, 73. https://doi.org/10.1016/j.resourpol.2021.102236

Indonesian Ministry of Industry, I. M. of I. (2022, February 10). Industri Manufaktur Indonesia Semakin Ekspansif. Kementrian Perindustrian Republik Indonesia. https://kemenperin.go.id/artikel/23125/Industri-Manufaktur-Indonesia-Semakin-Ekspansif

John, K., & Williams, J. (1985). John, K., Williams, J., 1985. Dividends, dilution, and taxes: a signaling equilibrium. J. Financ. 40, 1053–1070. The Journal of Finance, 40, 1053–1070. https://doi.org/10.1111/j.1540-6261.1985.tb02363.x

Khanal, A. R., & Mishra, A. K. (2017). Stock price reactions to stock dividend announcements: A case from a sluggish economic period. North American Journal of Economics and Finance, 42(June 2009), 338–345. https://doi.org/10.1016/j.najef.2017.08.002

Krieger, K., Mauck, N., & Pruitt, S. W. (2021). The impact of the COVID-19 pandemic on dividends. Finance Research Letters, 42(September), 101910. https://doi.org/10.1016/j.frl.2020.101910

Lambrecht, B. M., & Myers, S. C. (2012). A Lintner Model of Payout and Managerial Rents Managerial Rents. The Journal of Finance, 67(5), 1761–1810.

Li, F. (2016). Endogeneity in CEO power: A survey and experiment. Investment Analysts Journal, 45(3), 149–162. https://doi.org/10.1080/10293523.2016.1151985

Lim, K. (2016). The Shift of a Dividend Policy and a Leverage Policy during the 2008 Financial Crisis. International Journal of Finance & Banking Studies (2147-4486), 5(6), 09–14. https://doi.org/10.20525/ijfbs.v5i6.600

Mazumder, S., & Saha, P. (2021). COVID-19: Fear of pandemic and short-term IPO performance. Finance Research Letters, 43(February), 101977. https://doi.org/10.1016/j.frl.2021.101977

McWilliams, A., & Siegel, D. (1997). Event studies in management research: Theoretical and empirical issues. Academy of Management Journal, 40(3), 626–657. https://doi.org/10.2307/257056

Miller, M. H., & Rock, K. (1985). Dividend Policy under Asymmetric Information. The Journal of Finance, 40(4), 1031–1051. https://doi.org/10.1111/j.1540-6261.1985.tb02362.x

Montasser, G. El, Charfeddine, L., & Benhamed, A. (2022). COVID-19, cryptocurrencies bubbles and digital market efficiency: sensitivity and similarity analysis. Finance Research Letters, 46(PA), 102362. https://doi.org/10.1016/j.frl.2021.102362

Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 575–592. https://doi.org/10.1111/j.1540-6261.1984.tb03646.x

Ong, C. L., Thaker, H. M. T., Khaliq, A., & Thaker, M. A. M. T. (2018). The Determinants of Dividend Payout: Evidence from the Malaysian Property Market. Iqtishadia, 10(2), 1. https://doi.org/10.21043/iqtishadia.v10i2.2863

Ongore, V. O., & Kusa, G. B. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237–252. http://www.econjournals.com/index.php/ijefi/article/view/334

Owusu, P., & Bentum-ennin, I. (2021). The impact of COVID-19 on stock market performance in Africa: A Bayesian structural time series approach. Journal of Economics and Business, 115. https://doi.org/10.1016/j.jeconbus.2020.105968

Ranajee, R., Pathak, R., & Saxena, A. (2018). To pay or not to pay: what matters the most for dividend payments? International Journal of Managerial Finance, 14(2), 230–244. https://doi.org/10.1108/IJMF-07-2017-0144

Reddemann, S., Basse, T., & Von Der Schulenburg, J. M. G. (2010). On the impact of the financial crisis on the dividend policy of the european insurance industry. Geneva Papers on Risk and Insurance: Issues and Practice, 35(1), 53–62. https://doi.org/10.1057/gpp.2009.37

Ri’a, N. I., Priyadi, M. P., & Mildawati, T. (2022). Government Policy Accountability On Implementation Of Cash Direct Assistance Program For Communities Affected By Covid-19 (Case Study in Ende Regency). Neo Journal of Economy and Social Humanities, 1(1), 71–79. https://doi.org/10.56403/nejesh.v1i1.27

Robiyanto, R., & Yunitaria, F. (2022). Dividend announcement effect analysis before and during the COVID-19 pandemic in the Indonesia Stock Exchange. SN Business & Economics, 2(2), 1–20. https://doi.org/10.1007/s43546-021-00198-8

Romus, M., Anita, R., Abdillah, M. R., & Zakaria, N. B. (2020). Selected Firms Environmental Variables: Macroeconomic Variables, Performance and Dividend Policy Analysis. IOP Conference Series: Earth and Environmental Science, 469(1). https://doi.org/10.1088/1755-1315/469/1/012047

Salvatori, E. G., Robiyanto, R., & Harijono, H. (2020). An Analysis of the Relationship Between Earnings and Corporate Taxes on Dividend Policy of Companies in Sri-Kehati Index. Journal of Management and Entrepreneurship Research, 1(1), 1–12. https://doi.org/10.34001/jmer.2020.6.01.1-1

Sekaran, U., & Bougie, R. (2016). Reserach Methods for Bussiness A Skill-Bulding Approach (7th ed.). John Wiley & Sons.

Shahzad, K., Rubbaniy, G., Lensvelt, M. A. P. E., & Bhatti, T. (2019). UK’s stock market reaction to Brexit process: A tale of two halves. Economic Modelling, 80, 275–283. https://doi.org/10.1016/j.econmod.2018.11.013

Sharma, R. K. (2021). Factors influencing dividend decisions of Indian construction, housing and real estate companies: An empirical panel data analysis. International Journal of Finance and Economics, 26(4), 5666–5683. https://doi.org/10.1002/ijfe.2087

Sharma, R. K., & Bakshi, A. (2019). An evident prescience of determinants of dividend policy of Indian real estate companies: An empirical analysis using co-integration regression and generalised method of moments. Journal of Financial Management of Property and Construction, 24(3), 358–384. https://doi.org/10.1108/JFMPC-02-2019-0012

Shruthi, M. S., & Ramani, D. (2021). Statistical analysis of impact of COVID 19 on India commodity markets. Materials Today: Proceedings, 37, 2306–2311. https://doi.org/10.1016/j.matpr.2020.07.729

Singla, H. K., & Samanta, P. K. (2018). Determinants of dividend payout of construction companies: a panel data analysis. Journal of Financial Management of Property and Construction, 24(1), 19 – 38. https://doi.org/10.1108/JFMPC-06-2018-0030

Sunardi, N., Husain, T., & Kadim, A. (2020). Determinants of Debt Policy and Company’s Performance. International Journal of Economics and Business Administration, VIII(Issue 4), 204–213. https://doi.org/10.35808/ijeba/580

Tinungki, G. M. (2019). Orthogonal iteration process of determining K value on estimator of Jackknife ridge regression parameter. Journal of Physics: Conference Series, 1341(9). https://doi.org/10.1088/1742-6596/1341/9/092001

Tinungki, G. M., Hartono, P. G., Robiyanto, R., Hartono, A. B., Jakaria, J., & Simanjuntak, L. R. (2022). The COVID-19 Pandemic Impact on Corporate Dividend Policy of Sustainable and Responsible Investment in Indonesia: Static and Dynamic Panel Data Model Comparison. Sustainability, 14(10), 6152. https://doi.org/10.3390/su14106152

Tinungki, G. M., Robiyanto, R., & Hartono, P. G. (2022). The Effect of COVID-19 Pandemic on Corporate Dividend Policy in Indonesia : The Static and Dynamic Panel Data Approaches. Economies, 10(1), 11. https://doi.org/10.3390/economies10010011

Utomo, C. D., & Hanggraeni, D. (2021). The Impact of COVID-19 Pandemic on Stock Market Performance in Indonesia. Journal of Asian Finance, Economics and Business, 8(5), 777–0784. https://doi.org/10.13106/jafeb.2021.vol8.no5.0777

Wahjudi, E. (2020). Factors affecting dividend policy in manufacturing companies in Indonesia Stock Exchange. Journal of Management Development, 39(1), 4–17. https://doi.org/10.1108/JMD-07-2018-0211

Wegman, F., Allsop, R., Antoniou, C., Bergel-Hayat, R., Elvik, R., Lassarre, S., Lloyd, D., & Wijnen, W. (2017). How did the economic recession (2008–2010) influence traffic fatalities in OECD-countries? Accident Analysis and Prevention, 102, 51–59. https://doi.org/10.1016/j.aap.2017.01.022

Yusof, Y., & Ismail, S. (2016). Determinants of dividend policy of public listed companies in Malaysia. Review of International Business and Strategy, 26(1), 88–99. https://doi.org/10.1108/RIBS-02-2014-0030




DOI: https://doi.org/10.26905/jkdp.v26i4.8226

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0