Dividend policy in Indonesian banking sector during COVID-19 pandemic period

Abstract

AbstractThis research examines the effect of the crisis caused by the COVID-19 pandemic on the dividend policy in banking companies in Indonesia with the focus on the 2014 to 2020 period. The samples were selected using the purposive sampling method, and the data were analyzed statistically using dynamic panel data regression with two estimation techniques which include the first difference generalized method of moments (FD-GMM) and the system generalized method of moments (SYS-GMM). Moreover, the predictor of the crisis caused by the COVID-19 pandemic was proxied by GDP growth and annual inflation rate, and this led to the estimation of four parameters to obtain comprehensive results. The model specification test also found only three-parameter estimates considered feasible for use in the research and the results showed that banks tend to distribute higher dividends during the period of the crisis caused by the pandemic. It was also discovered that profitability and dividends from the previous year have a significant positive effect on dividend policy. Furthermore, banking liquidity was found to also have a positive effect, while financial leverage, investment opportunity, and bank size have a negative effect on dividend policy. These findings are expected to serve as a reference for investors in making business decisions to achieve optimal returns and to allow company management, especially those in the banking sector, to formulate optimal dividend policies during a crisis.

Keywords

• dividend policy
• Indonesian banking sector
• COVID-19 pandemic
• Indonesia stock exchange
• dynamic panel data regression
• G21