IDEAS home Printed from https://ideas.repec.org/a/ukm/jlekon/v55y2021i1p71-85.html
   My bibliography  Save this article

Stock Price Reaction when Covid -19 Exist: Moderating by Firm’s Operating Cash Flow

Author

Listed:
  • Nugroho, Dwiyanjana Santyo

    (Accounting Science Postgraduate Universitas Indonesia FEB UI Postgraduate Building 2nd Floor UI Depok Campus 6424 INDONESIA)

  • Pertiwi, Meilani Intan

    (Accounting Postgraduate Universitas Gadjah Mada Bulaksumur Yogyakarta 55281 INDONESIA)

Abstract

COVID-19 has been declared a global pandemic by the WHO, rendering the stock markets volatile. Investors predict that the pandemic can be a threat to a company’s cash flow, whereas managers use the last year’s financial condition to defend their stock price. We evaluate whether the company’s operating cash flow moderates the company’s financial condition and stock price reactions, in addition to making a comparison between the period before and during the COVID-19 pandemic using Difference in Difference. The regression analysis model used is a random effect model. The objects of this research are the hotel, tourism, restaurant, and retail trade sub-sector companies in the first quarter and second quarter of 2020, and 2019 and 2018 annually. We found that none of the firm’s financial condition affected the stock’s price reaction. We also found that operating cash flow strengthens the relationship between cash and ROA to the stock price. The results of this study further imply that the COVID-19 pandemic caused a significant stock price reaction when compared between the time before and during the COVID-19 disaster in Indonesia. The current study is hoped to contribute towards supporting the government in formulating policies to stimulate the currently-slumping economy. This study can also assist the investors in preparing their analysis to determine whether what action they should take in regards to their stocks, considering that our research implicitly reflects the development of conditions in several industrial sectors.

Suggested Citation

  • Nugroho, Dwiyanjana Santyo & Pertiwi, Meilani Intan, 2021. "Stock Price Reaction when Covid -19 Exist: Moderating by Firm’s Operating Cash Flow," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(1), pages 71-85.
    • Handle: RePEc:ukm:jlekon:v:55:y:2021:i:1:p:71-85
    DOI: http://dx.doi.org/10.17576/JEM-2021-5501-5
    as

    Download full text from publisher

    File URL: http://www.ukm.my/jem/wp-content/uploads/2021/06/jeko_551-5.pdf
    Download Restriction: no
    File URL: https://libkey.io/http://dx.doi.org/10.17576/JEM-2021-5501-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Zhang, Jilin & Lai, Yongzeng & Lin, Jianghong, 2017. "The day-of-the-Week effects of stock markets in different countries," Finance Research Letters, Elsevier, vol. 20(C), pages 47-62.
    2. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    3. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 622-655.
    4. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    5. Kinateder, Harald & Campbell, Ross & Choudhury, Tonmoy, 2021. "Safe haven in GFC versus COVID-19: 100 turbulent days in the financial markets," Finance Research Letters, Elsevier, vol. 43(C).
    6. Robert M. Bushman & Alina Lerman & X. Frank Zhang, 2016. "The Changing Landscape of Accrual Accounting," Journal of Accounting Research, Wiley Blackwell, vol. 54(1), pages 41-78, March.
    7. E. Jeroh, 2020. "Firms Attributes, Corporate Social Responsibility Disclosure and the Financial Performance of Listed Companies in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(6), pages 727-743.
    8. Hossein Jabbari & Zeinolabedin Sadeghi & Seyed Ali Askari, 2013. "Cash Flow, Earning Opacity and its Impact on Stock Price Crash Risk in Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 138-145, October.
    9. Huijie Cui & Yanan Zhang, 2020. "Does investor sentiment affect stock price crash risk?," Applied Economics Letters, Taylor & Francis Journals, vol. 27(7), pages 564-568, April.
    10. Andrew C. Call & Shuping Chen & Yen H. Tong, 2013. "Are Analysts' Cash Flow Forecasts Naïve Extensions of Their Own Earnings Forecasts?," Contemporary Accounting Research, John Wiley & Sons, vol. 30(2), pages 438-465, June.
    11. Li, Sile & Lucey, Brian M., 2017. "Reassessing the role of precious metals as safe havens–What colour is your haven and why?," Journal of Commodity Markets, Elsevier, vol. 7(C), pages 1-14.
    12. Abeer Hassan & Ahmed A. Elamer & Mary Fletcher & Nawreen Sobhan, 2020. "Voluntary assurance of sustainability reporting: evidence from an emerging economy," Accounting Research Journal, Emerald Group Publishing Limited, vol. 33(2), pages 391-410, February.
    13. Dang Ngoc Hung & Hoang Thi Viet Ha & Dang Thai Binh, 2018. "Impact of Accounting Information on Financial Statements to the Stock Price of the Energy Enterprises Listed on Vietnam s Stock Market," International Journal of Energy Economics and Policy, Econjournals, vol. 8(2), pages 1-6.
    14. Ali Murad Syed & Ishtiaq Ahmad Bajwa, 2018. "Earnings announcements, stock price reaction and market efficiency – the case of Saudi Arabia," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 11(3), pages 416-431, February.
    15. Francis, Rick N. & Glandon, Sid & Olsen, Lori, 2013. "The persistence of current and proposed measures of operating cash flow," Research in Accounting Regulation, Elsevier, vol. 25(2), pages 157-168.
    16. E. Jeroh, 2020. "Firms Attributes, Corporate Social Responsibility Disclosure and the Financial Performance of Listed Companies in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(6), pages 727-743, June.
    17. Scott R. Baker & Nicholas Bloom & Steven J. Davis & Kyle J. Kost & Marco C. Sammon & Tasaneeya Viratyosin, 2020. "The Unprecedented Stock Market Impact of COVID-19," NBER Working Papers 26945, National Bureau of Economic Research, Inc.
    18. Ramelli, Stefano & Ossola, Elisa & Rancan, Michela, 2020. "Climate Sin Stocks: Stock Price Reactions to Global Climate Strikes," JRC Working Papers in Economics and Finance 2020-03, Joint Research Centre, European Commission.
    19. Xiang Zhang & Han Zhou, 2020. "Leverage structure and stock price synchronicity: Evidence from China," PLOS ONE, Public Library of Science, vol. 15(7), pages 1-15, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Enilov, Martin & Mensi, Walid & Stankov, Petar, 2023. "Does safe haven exist? Tail risks of commodity markets during COVID-19 pandemic," Journal of Commodity Markets, Elsevier, vol. 29(C).
    2. Zuo, Jingjing & Qiu, Baoyin & Zhu, Guoyiming & Lei, Guangyong, 2023. "Local speculative culture and stock price crash risk," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Mahdi Moradi & Andrea Appolloni & Grzegorz Zimon & Hossein Tarighi & Maede Kamali, 2021. "Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?," Sustainability, MDPI, vol. 13(7), pages 1-16, March.
    4. Lu, Shan & Zhao, Jichang, 2024. "Investor network and stock return comovement: Information-seeking through intragroup and intergroup followings," International Review of Financial Analysis, Elsevier, vol. 93(C).
    5. Zhang, Junru & Zheng, Chen & Shan, Yuan George, 2024. "What accounts for the effect of sustainability engagement on stock price crash risk during the COVID-19 pandemic—Agency theory or legitimacy theory?," International Review of Financial Analysis, Elsevier, vol. 93(C).
    6. Wang, Jiaxin & Zhu, Zhaowei & Huang, Xiang, 2023. "Stock bubbles under sudden public crises: A perspective from the excessive financialization of firms," Finance Research Letters, Elsevier, vol. 57(C).
    7. Pawel Bilinski, 2023. "Analyst Research Activity During the COVID‐19 Pandemic," Abacus, Accounting Foundation, University of Sydney, vol. 59(4), pages 1041-1073, December.
    8. Dash, Saumya Ranjan & Maitra, Debasish, 2022. "The COVID-19 pandemic uncertainty, investor sentiment, and global equity markets: Evidence from the time-frequency co-movements," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    9. Huang, Shoujun & Liu, Hezhe, 2021. "Impact of COVID-19 on stock price crash risk: Evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 101(C).
    10. Aloui, Chaker & Asadov, Alam & Al-kayed, Lama & Hkiri, Besma & Danila, Nevi, 2022. "Impact of the COVID-19 outbreak and its related announcements on the Chinese conventional and Islamic stocks’ connectedness," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    11. Persakis, Antonios & Iatridis, George Emmanuel, 2023. "How economic uncertainty influences the performance of investor perceptions and behavior," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    12. Leye Li & Louise Yi Lu & Dongyue Wang, 2022. "External labour market competitions and stock price crash risk: evidence from exposures to competitor CEOs’ award‐winning events," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1421-1460, April.
    13. Akhtaruzzaman, Md & Boubaker, Sabri & Sensoy, Ahmet, 2021. "Financial contagion during COVID–19 crisis," Finance Research Letters, Elsevier, vol. 38(C).
    14. Ararat, Melsa & Yurtoglu, B. Burcin, 2021. "Female directors, board committees, and firm performance: Time-series evidence from Turkey," Emerging Markets Review, Elsevier, vol. 48(C).
    15. Loureiro, Gilberto & Silva, Sónia, 2022. "Earnings management and stock price crashes post U.S. cross-delistings," International Review of Financial Analysis, Elsevier, vol. 82(C).
    16. Sudip Datta & Mai Iskandar‐Datta & Vivek Singh, 2014. "Opaque financial reports and R2: Revisited," Review of Financial Economics, John Wiley & Sons, vol. 23(1), pages 10-17, January.
    17. Luo, Yan & Wang, Xiaohuan & Zhang, Chenyang & Huang, Wei, 2021. "Accounting-based downside risk and expected stock returns: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).
    18. Emre Arat & Britta Hachenberg & Florian Kiesel & Dirk Schiereck, 2023. "Greenium, credit rating, and the COVID-19 pandemic," Journal of Asset Management, Palgrave Macmillan, vol. 24(7), pages 547-557, December.
    19. Abd El-Rahman M. Selmy & Khairy A. El-Giziry, 2016. "On the Informational Role of Delayed Good News: A Firm-Level Crash Risk Evidence from Egypt," Accounting and Finance Research, Sciedu Press, vol. 5(3), pages 1-44, August.
    20. Prelorentzos, Arsenios-Georgios N. & Konstantakis, Konstantinos N. & Michaelides, Panayotis G. & Xidonas, Panos & Goutte, Stephane & Thomakos, Dimitrios D., 2024. "Introducing the GVAR-GARCH model: Evidence from financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

    More about this item

    Keywords

    Covid-19; financial condition; operating cash flow; stock price;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ukm:jlekon:v:55:y:2021:i:1:p:71-85. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Muhammad Asri Abd Ghani (email available below). General contact details of provider: https://edirc.repec.org/data/feukmmy.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.