Cash Reserve, CEO Health Risk, the Price Reaction due to COVID-19 First Announcement on Leisure Industry

Muhammad Afif Arsyad; Cynthia Afriani Utama

doi:10.15294/jdm.v13i2.36706

Cash Reserve, CEO Health Risk, the Price Reaction due to COVID-19 First Announcement on Leisure Industry

Muhammad Afif Arsyad⁽¹⁾, Cynthia Afriani Utama⁽²⁾,

DOI: https://doi.org/10.15294/jdm.v13i2.36706

(1) University of Indonesia
(2) University of Indonesia

Abstract

This study investigates stock market reaction in leisure industries to the first Government announce- ment of the COVID-19 outbreak in Indonesia on March 2, 2020. This study used event study meth- odology and was supported by multiple linear regression to analyze the relationship between market reaction and independent variables. The analysis was further modeled using Fama French three-fac- tor models to estimate the expected return on firms due to the first COVID-19 outbreak announce- ment. Based on our calculation of Cumulative abnormal returns, the stock of tourism industries has more negative reaction towards a confirmed first case of COVID-19 compared to other industries. We also find that Indonesian firms with greater cash reserves experienced less negative stock returns while firms with higher leverage ratios were penalized more. Additionally, this paper does not find that firms with Chief Executive Officers (CEO) who were exposed to significant health risks from COVID-19 experienced worse stock market performances.

Keywords

COVID-19, Cash Reserve, CEO Health Risk, Event Study, Fama-French Three-Factor Model.

Full Text:

PDF

References

Abd Al-Awadhi, A. M., Alsaifi, K., Al-Awadhi, A., & Alhammadi, S. (2020). Death and Con- tagious Infectious Diseases: Impact of the COVID-19 Virus on Stock Market Returns. Journal of Behavioral and Experimental Fi- nance, 27.

Abdullah, M., Hamzah, N., Ali, M. H., Tseng, M.-L., & Brander, M. (2020). The Southeast Asian Haze: the Quality of Environmental Disclo- sures and Firm Performance. Journal of Clean- er Production, 246, 118958.

Ahmad, T., Hussain, S., Akbar, M., & Rehman, A. U. (2022). Impact of Terrorism on Stock Mar- ket: Evidence from Developed and Develop- ing Markets. International Journal of Disaster Risk Reduction, 70.

Alam, M. M., Wei, H., & Wahid, A. N. M. (2021).

COVID-19 Outbreak and Sectoral Perfor- mance of the Australian Stock Market: an Event Study Analysis. Australian Economic Papers, 60(3), 482–495.

Anintyarini, C., & Utama, C. A. (2019). Market Reaction to Announcement of the Corpo- rate Governance “Comply or EXplain” Reg- ulation and Determinants of Compliance Level.

Ashraf, B. N. (2020). Stock Markets’ Reaction to COVID-19: Cases or Fatalities? Research in International Business and Finance, 54.

Atmojo, M. E., & Fridayani, H. D. (2021). An As- sessment of Covid-19 Pandemic Impact on Indonesian Tourism Sector. Journal of Gover- nance and Public Policy, 8(1), 1–9.

Au Yong, H. H., & Laing, E. (2021). Stock Market Reaction to COVID-19: Evidence from U.S. Firms’ International EXposure. International Review of Financial Analysis, 76.

Awwaliyah, I. N., & Husodo, Z. A. (2018). The EX- tended Fama-French Three Factor Model: Revisited. The Indonesia Capital Market Re- view, 10(2), 128-145.

Bodie, Z., Kane, A., & Marcus, Alan. J. (2014). In- vestments (Douglas Reiner, Ed.; 10th Edition). Mc-Graw Hill : Amerika Serikat

Cardella, L., Fairhurst, D., & Klasa, S. (2021). What Determines the Composition of a Firm’s Cash Reserves? Journal of Corporate Finance, 68 .

Carter, D., Mazumder, S., Simkins, B., & Sisneros, E. (2022). The Stock Price Reaction of the COVID-19 Pandemic on the Airline, Hotel, and Tourism Industries. Finance Research Letters, 44.

Chen, M. H., Demir, E., García-Gómez, C. D., & Zaremba, A. (2020). The impact of Policy Responses to COVID-19 on U.S. Travel and Leisure Companies. Annals of Tourism Re- search Empirical Insights, 1(1).

Clark, J., Mauck, N., & Pruitt, S. W. (2021). The Finan- cial Impact of COVID-19: Evidence from an Event Study of Global Hospitality Firms. Re- search in International Business and Finance, 58.

Conrad, C., & Zumbach, K. U. (2016). The Effect of Political Communication on European Finan- cial Markets during the Sovereign Debt Crisis. Journal of Empirical Finance, 39, 209–214.

de Area Leão Pereira, E. J., da Silva, M. F., da Cunha Lima, I. C., & Pereira, H. B. B. (2018). Trump’s Effect on Stock Markets: a Multi- scale Approach. Physica A: Statistical Mechan- ics and Its Applications, 512, 241–247.

de Salazar, P. M., Niehus, R., Taylor, A., Buckee, C., & Lipsitch, M. (2020). Using Predicted Imports of 2019-nCoV Cases to Determine Locations that may not be Identifying all Im- ported Cases. MedRxiv : The Preprint Server for Health Sciences.

Devi, S., Warasniasih, N. M. S., & Masdiantini, P. R. (2020). The Impact of COVID-19 Pan- demic on the Financial Performance of Firms on the Indonesia Stock EXchange. Journal of Economics, Business, & Accountancy Ventura, 23(2), 2226-242.

Dunford, M., & Qi, B. (2020). Global Reset: CO- VID-19, Systemic Rivalry and the Global Or- der. Research in Globalization, 2.

Fama, E. F (1970). Efficient Capital Markets: Re- view of Theory and Capital Work. The Journal of Finance, 25(2), 383-417.

Fama, E. F., & French, K. R. (1993). Common Risk Factors in the Returns on Stocks and Bonds*. In Journal of Financial Economics, 33(1), 3-56.

Fernández-Méndez, C., & Pathan, S. (2022). Envi- ronmental Stocks, CEO Health Risk and CO- VID-19. Research in International Business and Finance, 59.

Goodell, J. W. (2020). COVID-19 and Finance: Agendas for Future Research. Finance Re- search Letters, 35.

Gössling, S., Scott, D., & Hall, C. M. (2020). Pan- demics, Tourism and Global Change: a Rapid Assessment of COVID-19. Journal of Sustain- able Tourism, 29(1), 1–20.

Gujarati, D. N., Porter, D. C., & Gunasekar, S. (2012). Basic Econometrics: Tata Mcgraw- hill Education.

Guidi, F. & Gupta, R. (2011). Are ASEAN Stock Market Efficient? Evidence from Univariate and Multivariate Variace Ratio Tests. Griffth Business School. Discussion Papers in Finance, 488-502.

Gursida, H & Indrayono, Y. (2019). Understanding Capital Market Responses to Government Economic Policy Announcements: an Event Study on Indonesia’s Economic Policy Package. Management Science Letters , 9(11), 1887-1900.

Gustavo M. L. Pereira, Jéfferson A. Colombo & Ota- vio Henrique dos Santos Figueiredo (2021). Market Reaction to Political Risk: evidence from the 2018 Brazilian Presidential Election. Latin American Business Review, 1-29.

Harjoto, M. A., & Rossi F, (2021). Market Reaction to the COVID-19 Pandemic: evidence from Emerging Markets. International Journal of Emerging Markets, 1746-8809.

Herwany, A., Febrian, E., Anwar, M., & Gunardi, A. (2021). The Influence of the COVID-19 Pan- demic on Stock Market Returns in Indonesia Stock EXchange. Journal of Asian Finance, Eco- nomics and Business, 8(3), 39–47.

Khamis, R., Anasweh, M., & Hamdan, A. (2018). In- ternational Journal of Energy Economics and Policy Oil Prices and Stock Market Returns in Oil EXporting Countries: Evidence from Saudi Arabia. International Journal of Energy Economics and Policy, 8(3), 301–306.

Khan, M. K. (2019). Impact of EXchange Rate on Stock Returns in Shenzhen Stock EXchange: Analysis Through ARDL Approach. Interna- tional Journal of Economics and Management, 1(2) 15-26.

Kowalewski, O., & Śpiewanowski, P. (2020). Stock Market Response to Potash Mine Disasters. Journal of Commodity Markets, 20.

Lieberson, S., & O’connor, J. F. (1972). Leadership and Organizational Performance: a Study of Large Corporations. American Sociological Review, 117-130.

Mhalla, M. (2020). The Impact of Novel Corona- virus (COVID-19) on the Global Oil and Aviation Markets. Journal of Asian Scientific Research, 10, 96-104.

Mugiarni, A., & Wulandari, P. (2021). The Effect of Covid-19 Pandemic on Stock Returns: an Evidence of Indonesia Stock EXchange. Jour- nal of International Conference Proceedings, 4(1), 28–37.

Nayak, J., Mishra, M., Naik, B., Swapnarekha, H., Cengiz, K., & Shanmuganathan, V. (2022). An Impact Study of COVID-19 on SiX Dif- ferent Industries: Automobile, Energy and Power, Agriculture, Education, Travel and Tourism and Consumer Electronics. Expert Systems, 39(3).

Rahman, M. L., Amin, A., & al Mamun, M. A. (2021). The COVID-19 Outbreak and Stock Market Reactions: Evidence from Australia. Finance Research Letters, 38.

Riyazahmed, K. (2021). Investment Motives and Preferences – An Empirical Inquiry during COVID-19. Investment Management and Financial Innovations, 18(2), 1-11.

Sharpe, W.F. (1964). Capital Asset Pricing: a Theory of Market Equilibrium under Condition of Risk. The Journal of Finance, 19(3), 425-442.

Shen, H., Fu, M., Pan, H., Yu, Z., & Chen, Y. (2020).

The Impact of the COVID-19 Pandemic on Firm Performance. Emerging Markets Finance and Trade, 56(10), 2213–2230.

Škare, M., Soriano, D. R., & Porada-Rochoń, M. (2021). Impact of COVID-19 on the Travel and Tourism Industry. Technological Forecast- ing and Social Change, 163.

Utama, C. A., & Hapsari, L. (2012). Jenis Industri, Kepemilikan Saham Asing dan Reaksi Pasar Modal Akibat Serangan Bom Teroris. Jurnal Akuntansi Dan Keuangan Indonesia, 9(2), 100–116.

Wibowo, M. S., & Sukmaningrum, P. S. (2019). Stock Market Reaction to the Tax Amnesty Announcement. The Indonesian Capital Mar- ket Review, 11(2), 3.