The Effect of COVID-19 Pandemic on Corporate Dividend Policy in Indonesia: The Static and Dynamic Panel Data Approaches

Georgina Maria Tinungki,Powell Gian Hartono,Robiyanto Robiyanto

doi:10.3390/economies10010011

Georgina Maria Tinungki, Powell Gian Hartono + Show 1 more

Open Access

https://doi.org/10.3390/economies10010011

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Abstract

This research examines the effect of the crisis due to the COVID-19 pandemic on dividend policy in Indonesia. The purposive sampling method was used to collect data from corporates listed on the IDX from 2014 to 2020 and analyzed using static and dynamic panel data approaches. The fixed-effect models (FEM) were selected for the static panel data regression. Meanwhile, the first difference-generalized method of moments (FD-GMM) and system-generalized method of moments (SYS-GMM) were used for determine the robustness of the estimated dynamic panel data. The results showed that the crisis due to the pandemic led to higher dividend distribution on SYS-GMM. Furthermore, companies maintained the dividend level as a positive signal for investors which lifted the sluggish trade condition in the capital market. Profitability and previous year dividends positively affect dividend policy robustly. Furthermore, the results showed that age affects dividend policy on FD-GMM. Financial leverage has a robust effect, and firm size has an effect on FD-GMM in different directions, while investment opportunity does not affect dividend policy. Statistically, the FEM selected that violates the best linear unbiased estimation was proven to form parameters that were not much different from the estimates produced by the dynamic model, both from the coefficient of influence direction and significance, and the omitted variable bias occurs as evidenced in the robust test with dynamic model was solved. This research is also used as a reference for considering investors’ investment decisions in the new normal condition. Therefore, dividend policy can be considered as a positive signal to investors with the ability to stock trading activities in the capital market.

Highlights

The COVID-19 pandemic is an extraordinary event (Altig et al 2020), and regarding the increasing number of positive cases in Indonesia, the Large-Scale Social Restriction (PSBB) policy has been enforced regionally
The crisis variable due to the COVID-19 pandemic as a proxy for gross domestic product (GDP) growth was not proven to have a positive effect on dividend policy; Hypothesis 1 (H1) was rejected
This result is robustly proven by the dummy variable, which stated that the crisis condition due to the COVID-19 pandemic positively affects the system-generalized method of moments (SYS-GMM) model

Summary

Introduction

The COVID-19 pandemic is an extraordinary event (Altig et al 2020), and regarding the increasing number of positive cases in Indonesia, the Large-Scale Social Restriction (PSBB) policy has been enforced regionally. The PSBB was first implemented in April 2020, with the issuance of Jakarta Governor Regulation Number 33 in this province, which was followed by other regions in the country. Governor Regulation Number 33 of 2020 Regarding PSBB 2020) This condition paralyzed the economy; the International Monetary Fund (IMF) predicts that by the end of the first quarter of 2020, there will be global economic recession (Liu et al 2020). People tend not to spend due to restricted movement, which anticipates the uncertainty of economic conditions. It was affected by the systemic impact of China’s trade. As the world’s largest importer of crude oil, it was economically affected by the pandemic, which negatively impacted other countries. Trading activities carried out in the PRC include electronic goods, computers, cellular phones, furniture, plastics, etc. (Liu et al 2020)

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