Exploring the relationship between dividend policy, the COVID-19 crisis, and stock market reaction: empirical insights from Indonesian real estate and property firms

Abstract

The economic turbulence experienced during the COVID-19 crisis in Indonesia in 2020 provides a backdrop for this study, which aims to investigate the relationship between the crisis and dividend policies within the real estate and property sectors in Indonesia, along with the stock market’s response to corporate announcements. The examination involves multiple robustness tests, including the incorporation of various proxy measures for the primary variables augmented with control variables to fortify the model, as well as a sub-period robustness check to assess the relationship between the crisis and dividend policies, and market reactions. The findings of this research indicate that companies tended to adopt a negative dividend policy during times of crisis. The sub-period robustness check consistently reveals that dividend policies are positively correlated with macroeconomic conditions, a pattern also observed in the pre-crisis period. The statistical analysis tools used are dynamic panel data regression for testing the causality of crisis and dividend policy, and also one-sample T-test for testing stock market reaction. Furthermore, the results suggest a positive market response to dividend announcements during the 2020 crisis. A comparison with the pre-crisis year 2019 and the post-crisis year 2021 indicates that these comparative periods did not exhibit a similar positive reaction as observed during the crisis. Consequently, this study offers implications for real estate and property sector companies in Indonesia to consider adopting negative dividend policy to maintain the company’s survival amidst a crisis full of uncertainty.

Keywords:

• Dividend policy
• stock market reaction
• crisis
• covid-19
• real estate and property

JEL Classifications:

• C33
• G01
• G35

REVIEWING EDITOR:

• David McMillan, University of Stirling, United Kingdom of Great Britain and Northern Ireland

Acknowledgment

The authors would like to express their gratitude to Professor Georgina Maria Tinungki, from the Department of Statistics at Hasanuddin University, Indonesia, for her guidance and invaluable insights into the research methodology, which significantly contributed to the successful completion of this study.

Authors contributions

Conceptualization, B.U., H.S.L.; methodology, B.U., H.S.L., S.S., L.E.; software, S.S., L.E.; validation, B.U., H.S.L.; format analysis, S.S., L.E.; investigation, B.U., H.S.L., S.S., L.E.; resources, B.U.; data curation, B.U., H.S.L.; writing—original draft preparation, B.U., H.S.L., S.S., L.E.; project administration, B.U., H.S.L., S.S., L.E.; funding acquisition, B.U., H.S.L.; writing—review and editing, B.U., H.S.L., S.S., L.E. All of the authors have thoroughly perused and assented to the final version of the manuscript that has been made available for publication.

Disclosure statement

In accordance with the principles of academic integrity, it is important to ensure that the work presented is free from any potential conflicts of interest. Thus, it is with great confidence that we disclose that the authors have reported no such conflicts in relation to the subject matter discussed in this work.

Data availability statement

The corresponding author can be contacted to request access to the datasets used and/or analyzed during the current study. The availability of the datasets is subject to reasonable requests.

Additional information

Funding

In terms of financial support, it should be noted that this research did not receive any particular grant from any funding agency in the public, commercial, or not-for-profit sectors.

Notes on contributors

Bahtiar Usman

Bahtiar Usman is a Professor of Management at the Faculty of Economics and Business, Universitas Trisakti, Jakarta, Indonesia. He earned his Ph.D. in Financial Management from Universitas Indonesia in 2012. Dr. Usman holds a faculty position at the Faculty of Economics and Business, Universitas Trisakti, where he is deeply committed to teaching and advancing the field of management science. His academic interests encompass various aspects of management, ranging from operational to strategic, financial, and risk management. His expertise in managerial finance extends to areas such as banking, investment, portfolio management, encompassing both fundamental and technical analyses, as well as considerations of Islamic and ethical principles. Collaborating with fellow academics, he actively contributes to the publication of scholarly articles in national and international journals, specializing in the field of Finance.

Henny Setyo Lestari

Henny Setyo Lestari holds the position of Assistant Professor in Corporate Finance and Banking at the Department of Management, Faculty of Economics and Business, Trisakti University. She earned her Ph.D. in Financial Management from Universitas Padjadjaran, Indonesia, with a focus on Corporate Finance. Her research interests primarily revolve around the fields of Corporate Finance and Banking.

Syofriza Syofyan

Syofriza Syofyan holds the position of Associate Professor in Monetary Economics at the Department of Development Economics, Faculty of Economics and Business, Trisakti University. She obtained his Ph.D. in Economics from Universitas Indonesia, specializing in Economics. Her research interests primarily focus on Monetary Economics and Econometrics.

Lavlimatria Esya

Lavlimatria Esya serves as an Assistant Professor in Islamic Economics at the Department of Development Economics, Faculty of Economics and Business, Trisakti University. She earned her Ph.D. from Trisakti University, focusing on Islamic Economics. Her research interests predominantly lie in the field of Islamic Economics and Finance.