The Impact of the COVID-19 Pandemic on Dividend Policy Relevance to Firm Value: The Case of the Indonesian Banking Industry

Abstract

Banking industry is synonymous to larger dividend payment compared to other sectors. The complexity of dividend policy is further exacerbated by the occurrence of COVID-19 pandemic. This research is aimed to test the impact of COVID-19 pandemic on dividend policy relevance to firm value (FV). FV is measured by firm market value (MV) and TOBINSQ. Meanwhile, dividend policy is measured by dividend payout ratio and dividend yield ratio. This research used Indonesian Banking Companies listed in Indonesia Stock Exchange Period 2018–2022. This research does not find a significant impact of dividend policy on FV and supports Irrelevance Theory, both for pre-COVID-19 pandemic and during COVID-19 pandemic. However, this research finds differing significant impact on each bank’s common equity tier that reflects the dynamic expectation imposed by the market for each common equity tier. This research also finds a more profound negative and significant impact of dividend policy on FV for state-owned banks compared to private banks. Furthermore, banking-specific performance measurement like a non-performing loan (NPL) and capital adequacy ratio (CAR) consistently impacts the banks’ FV.

Citation

Winoto, C.O. and Rudiawarni, F.A. (2024), "The Impact of the COVID-19 Pandemic on Dividend Policy Relevance to Firm Value: The Case of the Indonesian Banking Industry", Grigorescu, A. and Andrei, J.V. (Ed.) Entrepreneurship and Development for a Green Resilient Economy (Lab for Entrepreneurship and Development), Emerald Publishing Limited, Leeds, pp. 277-296. https://doi.org/10.1108/978-1-83797-088-920241011