Dynamics of dividend policy and stock market responses in Indonesian banking: Revisited across crisis phases

This study examines Indonesia’s COVID-19 crisis regime that narrowed banks’ dividend policy space and weakened the informational content of dividend declarations in the equity market. Using a panel of banks listed on the Indonesia Stock Exchange during 2016-2024, we compare dividend policy across pre-crisis, crisis, and post-crisis phases and test announcement effects to assess whether dividend signaling persists under prudential discipline. We estimate CEM, FEM, and REM panel models with System GMM extensions and RLS-MM robustness, supplemented by sub-period checks (2016-2021 and 2019-2024). An event study applies one-sample T tests under the CSPI market-adjusted model to compute AR and CAR over an 11-day window. Results show that bank payout declined during the crisis. Market reactions to dividend announcements weakened and became fragmented, then normalized as recovery strengthened internal cash capacity and capital buffers. The evidence is consistent with a dominant pecking order mechanism under liquidity pressure and capital needs, and with dividend signaling regaining credibility as recurring profitability improves and risk costs ease. We recommend rule-based payout governance tied to cycle indicators, recurring profitability, asset quality, and capital adequacy, supported by consistent disclosure. Originality lies in jointly testing dividend policy and market reactions across crisis phases in Indonesian banking.