The COVID-19 Pandemic Impact on Corporate Dividend Policy of Sustainable and Responsible Investment in Indonesia: Static and Dynamic Panel Data Model Comparison

Abstract

This research investigates the impact of crisis due to the COVID-19 pandemic on the dividend policy of green index companies in Indonesia, namely the Sustainable and Responsible Investment (SRI) by Biodiversity (KEHATI) Foundation, or SRI-KEHATI indexed companies. The purposive sampling technique was used to collect data from companies listed from 2014 to 2020, using static and dynamic panel data models. From the several panel data models tested, the static panel data regression with random effects model (REM) and fixed effect model (FEM) uses the least square dummy variable-robust standard error (LSDV-RSE) technique are the best econometric models feasible. The system generalized method of moments (SYS-GMM) is used as a suitable econometric model with a robustness test used to determine static panel data regression. It is reported that SRI-KEHATI indexed companies tend to distribute dividends positively during this crisis, and is also statistically proven robust. This gives a positive signal to the capital market concerning the sluggish trading activity. The market reaction test, using two-approaches, showed that this business did not provide a positive reaction to the capital market, which turned out to be pessimistic. Furthermore, profitability and financial leverage have a robust effect, while dividends from the previous year affect dividend policy on the static panel data model, and firm size affect dividend policy on SYS-GMM. Predictors that proved influential with a direction not in line with the hypothesis were investment opportunities on REM and SYS-GMM, and firm age on SYS-GMM. The parameter estimation that passes the model specification test is feasible, whiles the biased and inconsistency of parameter estimation due to the alleged correlation between ui,t and PYDi,t failed to occur in static panel data regression. The endogeneity issue was resolved by dynamic panel data regression with the strongest corrective effect. This research can be used as a reference for investors to obtain optimal returns on green index companies in the country. An optimal dividend policy can increase the value of the SRI-KEHATI indexed companies; therefore, it can contribute optimally to sustainability and responsibility for social and environmental aspects.