Abnormal returns before and during the COVID-19 pandemic
Using the event study methodology, the abnormal returns of the sample companies during the event window was calculated. The results were then combined as the average abnormal returns that represent the whole sample. The summarized average abnormal returns of the sample companies during the event window period in both 2019 and 2020 are shown in Table 2. In order to perform a significance test, this research uses the one sample t-test on the average abnormal returns. The t statistics of the average abnormal returns were being analyzed under the significance level of 0.01, 0.05, and 0.1 as shown in Table 2.
A general overview of the abnormal return comparison between the year 2019 and 2020 has been done. A one sample paired t-test was used to analyze the average abnormal returns for both years. For each year, the difference between the pre-announcement and post-announcement average was calculated with respect to each standard deviation in order to find the t statistics. The calculation has discovered the t statistics of 2019 and 2020 for respectively 136.56977 and 564.55602. The numbers are greater than the t table in all the significance levels of 0.01, 0.05, and 0.1. This implies that, under the one sample t-test, the results have rejected the null hypothesis and accepted H1 in a significant manner. Therefore, there is a great difference between the abnormal returns around the dividend announcement before and during the COVID-19 pandemic.
On a daily basis, the t statistics were being examined as well. From the event window in 2019, the t statistic numbers are negative. The range is from − 0.083188 on the eighth day before the event (t − 8) as the lowest value and − 0.125405 on the fourth day after the event (t + 4) as the highest value. The spread exceeds the t table value under the significance level of either 0.01 (− 2.81876), 0.05 (− 2.07387), or 0.1 (− 1.71714), which confirms that the null hypothesis has been accepted. The acceptance indicates that in the event window of 2019, abnormal returns were not found. Although there is a significant difference between the dividend announcement effect before and during the pandemic, the dividend announcement itself does not give a critical impact on the stock prices. It is shown by the insignificant changes in abnormal return around the dividend announcement date.
The result obtained is not aligned with the study from Frensidy et al. (2019) who has analyzed the dividend effect in Indonesia Stock Exchange from 2007 to 2012 and discovered a significant abnormal return around the dividend announcement date. Frensidy et al. (2019) has also mentioned that significant abnormal returns indicate an active response from the market to gain returns from the event. Thus, it confirms that the stock market manifests weak and delayed response toward the event. Pratama et al. (2020) who have examined the stock market reaction in the period of 2019 toward presidential election and Putra and Badjra (2021) with their research in the market reaction toward 2019’s stock split announcement, have discovered similar results where no abnormal returns are found.
Meanwhile, the t statistic values in 2020 exhibit mixed results. Under the significance level of 0.05 and 0.1, the t statistics that are ranged from − 3.236065 to − 2.575491 have rejected the null hypothesis, therefore, abnormal returns are found. Meanwhile, the t-test results for the significance level of 0.01, varies. On the ninth-day pre-event (t − 9), seventh to fourth day pre-event (t − 7 to t − 4), one day pre-event to seventh day post-event (t − 1 to t + 7), and ninth to tenth day post-event (t + 9 to t + 10), the t statistics are less than the t table, therefore rejecting the null hypothesis, hence, indicates that there is abnormal return happening in those days. However, on the tenth day pre-event (t − 10), eighth day pre-event (t − 8), third to second day pre-event (t − 3 to t − 2), and eighth day post-event (t + 8), the null hypothesis is accepted, thus, there were no abnormal returns found. In summary, the overall results are dominated by negative insignificant abnormal returns in which the values are much lower than the returns in 2019. Therefore, Indonesian Stock Exchange provides a sluggish response toward the event. This result is in line with the research by Mujib and Candraningrat (2021) and Frensidy et al. (2019) who have also found insignificant negative abnormal returns toward the COVID-19 pandemic, as well as Anwar et al. (2017) who discovered that during a recession period of 2003–2013, the returns of the stock decreased significantly compared to the normal condition.
The decrease in the stock market returns in 2020 is caused mainly by the emergence of COVID-19 pandemic. As stated by Schell et al. (2020), COVID-19 causes the most severe effect to the global stock market compared to the other disease outbreaks, such as Swine Influenza, Polio, Ebola and Zika. The impact of the COVID-19 pandemic becomes significant due to the crucial policies like the Large-Scale Social Restrictions that weighted the economy, causing it to grow sluggishly and leads to a bearish market pattern due to the less active market in reacting to other sentiments (Khanal and Mishra 2017). The illustration of the difference in the average abnormal returns and cumulative abnormal returns between 2019 and 2020 can be seen, respectively in Figs. 2 and 3.
Furthermore, the highest average abnormal return of 2019’s event window happened on the eighth day prior to the dividend announcement date (t − 8) and the lowest average abnormal return in 2019 happened on the tenth day prior to the dividend announcement date (t − 10). Meanwhile, in 2020, the highest average abnormal return happened on the eighth day prior to the dividend announcement date (t − 8) and the lowest average abnormal return happened on the tenth day after the dividend announcement (t + 10). A pattern where the highest average abnormal return happened in the eighth day pre-event (t − 8) in both 2019 and 2020, can indicate that there was a leakage of information prior to the issuance of the dividend announcements (Chaabouni 2017). However, it does not rule out the possibility that it was a mere coincidence. Longer period of analysis should be taken to prove it.
In line with the AAR, the CAAR for both 2019 and 2020 formed a consistent downline. The patterns indicate that the market has been consistently pessimistic toward the dividend announcement in either before or during the COVID-19 pandemic. The t statistics of CAAR in 2019 are significantly negative starting from the tenth day pre-event (t − 10) to fourth day pre-event (t − 4) under the significance level of 0.01 and constantly insignificant in the following days. Meanwhile, the t statistics of CAAR in 2020 have been significant starting from the ninth-day pre-event until the end of the event window under the significance level of either 0.01, 0.05, or 0.1. Looking at the steepness of the 2020’s downline shown in Fig. 3, it can be implied that the market response during the existence of the COVID-19 pandemic has been more pessimistic compared to the response from 2019.
Dividend increase and dividend decrease
Among the 23 sample companies that have been taken, there are 17 companies that distributed less amount of dividend in 2020 compared to 2019. On the contrary, 6 companies recorded an increase in dividend. Based on the AAR as shown in Table 3 as well as illustrated in Figs. 4 and 5, the market reaction difference toward the dividend decrease and dividend increase can be seen.
From the AAR values, it can be implied that the market reacts differently toward the dividend announcement of the companies with decreased dividend and toward the dividend announcement of the companies with increased dividend. Before the emergence of the COVID-19 pandemic, the companies with increased dividend received a positive AAR which indicates that the investors are optimistic in the information provided by the announcement. However, after the pandemic hit, the market provided a negative response upon the good news. Meanwhile, in case of the dividend decrease, negative reactions are found in both 2019 and 2020. The negative reaction exhibited by the market indicates that the investors have anticipated the unfavorable news and adds it to their cautiousness of spending their investment funds.
In summary, within a normal situation, increased dividend can be a good signal for the investors, since the market may react positively to the sentiment. However, in a highly uncertain situation, the COVID-19 pandemic for instance, the positive sentiment may not trigger significant reaction from the market. The COVID-19 pandemic causes very high uncertainty due to the multiple interconnected problems that occurred, such as the healthcare problem, credit issues, economic activity and productivity problems, etc. (Herwany et al. 2021). Those problems may distract the market from responding to the stock market sentiment. The pessimistic market reactions during the pandemic can be caused by the distraction as well. Nevertheless, further research should be done to confirm the real causes.
Stocks return risk-profiling
In order to analyze the stock performance risk-profiling, a calculation of standard deviation, mean, and coefficient of variation had been done. The calculation had been done separately between 10 days prior to the dividend announcement and 10 days after the dividend announcement. The average for each period is used to determine whether the company is categorized as high risk or low risk. In 2019, UNTR, HMSP, SMGR, TKIM, and INKP are categorized as high risk in both 10 days prior to the dividend announcement and 10 days after the dividend announcement. BBTN, UNVR, CPIN, and SRIL are categorized as low risk before the announcement and high risk after the announcement and the rest of the samples are categorized as low risk in both periods. On the other hand, in 2020, BBTN and INDF are both categorized as high risk in 10 days prior to the dividend announcement and 10 days after the dividend announcement. AKRA recorded a unique profile where it is categorized as high risk before the announcement and low risk after the announcement while the rest of the samples are categorized as low risk in both periods (Table 4).
Given the data, it can be concluded that the risk occurrence around the dividend announcement in the period of COVID-19 tends to be lower than the normal condition. The possible cause is due to the weaker market reaction toward the event. The investors are possibly being more cautious in making their investment decisions since the market manifests a lot of uncertainty, therefore causing a delay or even no reaction to the positive event. These findings are consistent with the research of Angelovska (2017) that has discovered that the investors in Macedonian stock market did not show any reaction toward the dividend policy during the recession period in 2008–2009.
Because of the emergence of the pandemic, various changes in risk have happened. INDF is one of the sample companies that has recorded a major change in the risk between the period before and during the COVID-19 pandemic. The risk recorded before the pandemic is within the range of 0–2%, while after the pandemic, the range has increased to 100–300%. However, it is contradictory with ICBP from the same sector of IDX Sector Consumer Non-Cyclical (IDXNONCYC). The risk average of ICBP in 2020 is the lowest from all of the sample companies with the number of 1.79%. Therefore, due to the uncertainty, investors should be careful in building their portfolio to avoid unwanted situations. From all of the sample companies being analyzed, the companies with low risk in both 2019 and 2020, based on the sectors are ITMG (IDXENERGY), ASII (IDXINDUST), ANTM and INTP (IDXBASIC), WIKA, PTPP, JSMR, and TLKM (IDXINFRA), BBNI and BMRI (IDXFINANCE), KLBF (IDXHEALTH) and ICBP (IDXNONCYC). IDXINFRA is dominating with four low-risk companies on the list and may be suitable for the investors that are tend to be risk averse. However, further analysis still needs to be applied.