This study aimed to thoroughly examine the impact of government responses to the COVID-19 pandemic on market reactions to company dividend announcements in the Association of Southeast Asian Nations (ASEAN) countries. It also explored how these government responses influenced market reactions based on country-specific factors, dividend types and company characteristics.
In order to achieve the stated objectives, the event study method was adopted for this investigation using 5,648 dividend announcements made by various companies listed in 5 ASEAN countries from 2020 to 2022 to assess market reactions. Additionally, regression analysis with robust standard errors was conducted to examine the impact of government responses to COVID-19 on these market reactions.
The results showed that government responses to COVID-19 negatively affected market reactions to dividend announcements across the five explored ASEAN countries, with the strongest impact in Thailand and Indonesia. Investors in these countries were observed to be more concerned about the pandemic and strict policies such as lockdowns. This is particularly evident in dividend decreases and no-change announcements, as investors viewed stringent measures as signs of economic uncertainty, thereby reducing confidence in company stability. Accordingly, firm-level analysis showed that large, highly profitable and low-leverage companies experience stronger negative reactions, emphasizing the varying sensitivity of companies to government interventions.
The current study is the first to provide novel insights into government responses with the aim of determining the effectiveness of dividend announcements to market reactions during COVID-19 among companies in ASEAN countries.
1. Introduction
Unlike the precedent crisis, the COVID-19 pandemic is a double-edged outbreak that reshaped the global economic landscape. Generally, the pandemic was observed to adversely impact various economic sectors, including finance, transportation, power and heating, mining and environmental industries (He et al., 2020; Yudaruddin, 2023). The government implemented various measures to mitigate the spread of COVID-19, including halting economic activities across multiple countries. This limited economic movement forced companies to confront a multitude of risks and instigated a sense of panic (Ashraf, 2020; Pandey and Kumari, 2021; Heyden and Heyden, 2021), including the suspension of dividend payments by companies (Cejnek et al., 2021; Ali, 2022; Pettenuzzo et al., 2023).
In the context of Association of Southeast Asian Nations (ASEAN)-listed companies, empirical evidence has suggested that dividend announcements positively influenced stock returns around announcements (Suwanna, 2012; Ngoc and Cuong, 2016; Manurung et al., 2024). However, during periods of economic instability and increased uncertainty, companies may reduce or completely halt dividend payouts to retain additional cash reserves and strengthens respective abilities to withstand challenges (Krieger et al., 2021; Pettenuzzo et al., 2023). As a result, the market tends to react unfavorably when dividend payments are halted, and managers typically avoid passing the negative signal to the market via dividend cut announcements (Gebka, 2019). Meanwhile, Prakash and Yogesh (2021) found that dividend announcements positively affected several companies during the COVID-19 pandemic. In the context of Indonesian listed companies, Robiyanto and Yunitaria (2022) reported that investors reacted positively toward dividend increases and constant announcements, while the market responded negatively to dividend reduction announcements. Tinungki et al. (2022) similarly stated that announcing a dividend increase could amplify investors' optimism. Meanwhile, Pandey and Kumari (2022) reported how these dividend announcements failed to influence the stock prices during the pandemic period. The worsened condition of COVID-19 has weakened the positive signal transmitted via dividend payment announcements, and the policy was no longer effective in promoting investor sentiment during the period. Considering these observations, a detailed investigation is needed to understand the weakened role of dividend payout announcements in delivering positive signals to the market, specifically during the COVID-19 pandemic.
Previous literature has suggested that government responses to curb COVID-19 cases are essential to rebounding the economic downturn. These responses act as positive signals to increase the confidence of investors. Regarding stock returns, Saif-Alyousfi (2022) reported that COVID-19 significantly reduced stock returns across all markets, while strict government policies led to a substantial increase in stock market returns globally and in various regions. On the contrary, Ashraf (2020) discovered that government restriction announcements, government information campaigns and the cancellation of public events (Zaremba et al., 2020) dampened the international stock market returns, while economic aid, COVID-19 testing and quarantine rules had a positive impact. Accordingly, Narayan et al. (2021) reported how government responses, such as lockdowns and economic aid, positively influenced the stock market in G7 countries. In contrast, Caporale et al. (2022) showed that lockdown measurements during COVID-19 decreased returns and increased market volatility of G7 countries. These insights invariably suggest that different government interventions or measurements affected stock returns differently.
Precedent results have shown the presence of two main issues, including the weakening positive role of dividend payment announcements and the contradicting results on the role of government responses on stock return performance in the COVID-19 crisis period. To address these issues, the current study seeks to provide in-depth insight into the following questions. (1) How do government responses to the COVID-19 pandemic influence market reactions to dividend announcements of companies in ASEAN-5 countries? And (2) to what extent do government responses shape these market reactions across countries, dividend types and company characteristics? To address these questions, the paper’s first objective is to examine market reactions surrounding dividend announcements in ASEAN-5 listed companies during COVID-19. Using the signaling theory (John and Williams, 1985) and market efficiency hypothesis (Fama, 1970), dividend announcements were selected as the key signals of company stability. Market reactions to these announcements often reflect investor confidence in the performance and prospects of companies, thereby influencing entire financial market movements. This study was conducted on companies listed in five ASEAN countries, including Malaysia, Indonesia, Thailand, the Philippines and Vietnam, as the unit of analysis. These countries were selected due to three particular reasons, including (1) ASEAN-5 shares an almost similar economic landscape with a semi-strong form nature in its stock market, (2) ASEAN-5 is among the top in the ASEAN region’s stringency index (government policy response measurement generated from Oxford Coronavirus Government Response Tracker (OxCGRT)) and (3) ASEAN governments faced challenges in coordinating COVID-19 responses, leading to varied policies across member states (Djalante et al., 2020). However, Asian companies, including those in ASEAN, have been observed to have more substantial dividend stability than US and European counterparts due to increased cash flows, financial conservatism and crisis management experience (Murugaboopathy, 2020). Therefore, we expect our empirical evidence to be unique and compelling to the regional ASEAN-5 setting, which is very much lacking in the existing studies.
Limited investigations have examined how government policies influenced market reactions to dividend announcements during the COVID-19 period. Empirically, prior explorers have separately analyzed dividend policies during crises (e.g. Tinungki et al., 2022; Pandey and Kumari, 2022) and government interventions in the financial market (e.g. Zaremba et al., 2020; Narayan et al., 2021). Despite the presence of these prior studies, the combined effects of dividend policies and government interventions during crises remain underexplored. To address this research gap, this study employed signaling theory (John and Williams, 1985) and the market efficiency hypothesis (Fama, 1970) to explore the second objective by investigating the impact of government interventions on investors' expectations surrounding dividend announcement news. Accordingly, the Stringency Index was applied as a government intervention or response proxy toward the COVID-19 crisis. By examining company-level data across ASEAN-5 markets, this study provides empirical evidence on how dividend announcements interact with varying government responses, clarifying whether policy interventions reinforce or undermine dividend relevance in shaping investor reactions. Actions such as lockdowns, social restrictions and economic support were included, which played a significant role in controlling the spread of the virus, safeguarding public health and supporting economic stability. Furthermore, considering external factors such as government responses, the exploration provides valuable insights into market dynamics and ASEAN’s companies' financial decisions during the observed uncertain periods.
This study contributes to the literature on dividend policy and government responses to crises in three important ways. First, in the aspect of theoretical contribution, this paper extends signaling theory and the market efficiency hypothesis by incorporating government interventions as external signals that interact with firm-level dividend announcements during periods of elevated uncertainty. This interaction provides a nuanced understanding of how macro-policy responses can amplify or dampen the effectiveness of corporate financial signaling in times of crisis. Second, as for the perspective of literature, the study is among the first to jointly examine government stringency measures and dividend announcements in the context of the COVID-19 pandemic, focusing on ASEAN-5 countries – a region with shared economic characteristics but diverse policy responses. Prior studies often treated dividend policy announcements and government interventions separately; this paper uniquely combines both to analyze their simultaneous effects on investor behavior. Third, in terms of methodology, this study advances existing work by applying an event study approach with cross-sectional variation across dividend types (increase, decrease and no change), firm characteristics (leverage, profitability and size) and country-specific policy stringency. The use of the Oxford COVID-19 Stringency Index as a time-varying policy proxy also allows for a granular analysis of policy effectiveness, while robustness checks ensure the reliability of the results. Finally, these contributions offer new insights into how market participants interpret dividend signals under external shocks, particularly in emerging market settings where institutional responses to crises are heterogeneous and less studied.
2. Literature review
2.1 Theoretical framework
Theoretical perspectives on dividend policy provide a foundation for understanding the relationship between dividend announcements and market reactions, particularly amid government policies during the COVID-19 pandemic. The crisis created an environment of heightened risk and information asymmetry, making corporate financial decisions, especially dividend announcements, more impactful for investors. In this context, signaling theory and the market efficiency hypothesis offer key insights into how investors interpret and respond to dividend-related information. This study adopts signaling theory, which posits that dividends signal a firm’s financial health and future prospects (John and Williams, 1985), particularly in uncertain times when investors rely on such cues to assess stability. Strong firms use dividends to convey confidence and distinguish themselves from weaker peers. Meanwhile, the market efficiency hypothesis (Fama, 1970) suggested that investors quickly incorporated these signals into stock prices. However, during the pandemic, government interventions influenced the strength of dividend signals. Fiscal and monetary support measures helped sustain investor confidence (Zaremba et al., 2020), while restrictive policies like lockdowns increased uncertainty and weakened the positive impact of dividend announcements (Scherf et al., 2022). These dynamics demonstrate that the effectiveness of dividend signaling is shaped by broader regulatory and economic contexts.
2.2 Government responses and market reactions to dividend announcements
Dividend announcements generally influenced market momentum and served as key signals for investors, especially in emerging markets (Kumari et al., 2024). Bask (2020) noted both immediate and cumulative effects, with higher-risk stocks showing stronger time effects. Social media sentiment briefly impacted abnormal returns (Hassanein et al., 2021), and investor responses varied by country and news type, with sharper reactions to dividend cuts (Gebka, 2019). During COVID-19, announcements reshaped sentiment amid rising cases and media coverage, leading to market downturns (Ashraf, 2020; Heyden and Heyden, 2021; Albaity et al., 2022). Recent studies highlight that excessive disclosure, whether in sustainability or risk reporting, may reduce firm value due to information overload or strategic concerns (Hassanein and Elmaghrabi, 2025; Hassanein and Albitar, 2024; Elsayed and Hassanein, 2024). However, innovation can offset negative impacts of earnings management on environmental, social and governance performance and support investor confidence (Abdelbaky et al., 2024).
In the context of dividend policy, empirical evidence documented unusual firms' payout trends, especially in the pandemic period. For example, in the US, Krieger et al. (2021) found that 15% of companies reduced dividends, while 6% suspended payouts, with the rate of cuts significantly higher than in previous years. Similarly, Cejnek et al. (2021) observed a sharp decline in dividends across major indices, including the S&P 500, Euro Stoxx 50 and Financial Times Stock Exchange 100, particularly among companies with weaker cash flow. In Indonesia, Usman et al. (2024) found that real estate companies adopted a cautious dividend policy, with favorable market reactions to dividend announcements during the crisis. However, this positive sentiment was not observed in the pre- and post-crisis periods, suggesting that investor expectations and market conditions during the pandemic played a very significant role in shaping dividend-related market responses.
Hence, during COVID-19, dividends played a more crucial role in maintaining investor confidence and market stability. Prakash and Yogesh (2021) emphasized that dividends served as key signals of firm performance and future expectations, helping investors assess financial health during the crisis. Hasan and Islam (2022) further showed how stable dividend policies contributed to market stability by reducing uncertainty and reinforcing investor trust. In a broader context, Ali (2022) reported widespread dividend reductions in G-12 countries as companies aimed to conserve cash, though some companies maintained or increased payouts to signal financial resilience. Zainudin et al. (2018) further reported that stable dividend policies were associated with lower stock volatility, thereby reinforcing the importance of these policies in turbulent market conditions.
Market reactions to dividend announcements varied depending on the economic environment and investor sentiment. Within this context, Robiyanto and Yunitaria (2022) found that increased dividends or stable payouts generally led to positive investor responses, while reductions triggered negative market reactions. Furthermore, Tinungki et al. (2022) reported how dividend increases initially facilitated and significantly enhanced investor optimism, but the effectiveness of the factor in mitigating market uncertainty declined as the pandemic intensified. In contrast, Al-Khasawneh et al. (2024) found that Gulf Cooperation Council investors reacted negatively to all dividend announcements, even though the impact of dividend cuts was less severe during pre-pandemic periods.
Government policies played a crucial role in shaping market reactions to dividend announcements during the COVID-19 pandemic. Supportive measures such as fiscal stimuli, monetary easing and containment efforts aimed to stabilize investor sentiment. Studies by Klose and Tillmann (2021), Pandey and Kumari (2022) and Zaremba et al. (2020) found that these policies reduced uncertainty and often led to positive abnormal returns, particularly when aligned with dividend increases. In the banking sector, Demir and Danisman (2021) showed that income support and debt relief helped mitigate negative stock market reactions. Scherf et al. (2022) further observed that lockdown measures initially triggered mixed reactions but later saw more positive market responses as restrictions eased, highlighting the dynamic impact of evolving policy signals on financial markets.
Recent empirical findings also provide broader insights into the influence of government policy on stock market performance. Sunardi et al. (2023) observed that the announcement of Indonesia’s domestic market obligation policy for coal received a negative market response, with short-term overreactions and increased trading volume activity. Bannigidadmath et al. (2022), based on data from 25 countries, found that stimulus and lockdown policies triggered negative returns in nearly half of the markets studied. Kotcharin et al. (2023) showed that while containment and health policies increased airline stock returns, economic support policies had no significant effect. Centinaio et al. (2024) highlighted the heterogeneous stock market responses to fiscal expansions and contractions across Eurozone countries. Additionally, Su et al. (2002) demonstrated that direct government intervention in the Hong Kong stock market successfully reversed declining trends and reduced volatility.
Despite these insights, limited investigations have specifically examined how government policies influenced market reactions to dividend announcements during the COVID-19 period. While dividend policy serves as a crucial corporate signal, especially during economic uncertainty, stringent or insufficient government responses may weaken its signaling effect. Based on these arguments, this study formulates the following hypothesis:
Government policy negatively impacts market reactions to dividend announcements.
Government policies during the COVID-19 pandemic had a nuanced and context-dependent impact on market reactions to dividend announcements. Drawing from signaling theory (John and Williams, 1985), dividend changes serve as important signals of a firm’s financial condition, especially in high-uncertainty environments. When firms announced dividend increases, such actions were typically interpreted as positive signals, and in the presence of supportive fiscal or monetary policies, investor confidence was further strengthened – resulting in favorable market responses (Zaremba et al., 2020; Pandey and Kumari, 2022). However, when firms announced dividend reductions or no changes, the market response was less straightforward. According to the market efficiency hypothesis (Fama, 1970), such announcements, if interpreted negatively, are quickly reflected in stock prices. Yet, during COVID-19, restrictive government interventions such as lockdowns (Scherf et al., 2022) added layers of uncertainty and weakened the informativeness of dividend signals. Empirical findings, such as those reported by Al-Khasawneh et al. (2024), further supported the notion that even positive dividend announcements were met with negative market reactions under conditions of heightened uncertainty, suggesting that government interventions moderated or distorted traditional market responses. This mixed evidence underscores the need to test the directional impact of government policy in the specific context of dividend reductions and no-change announcements. Thus, grounded in these theoretical and empirical insights, the following hypothesis is proposed:
Government policy negatively impacts market reactions to dividend reduction and no-change announcements.
3. Data and methodology
This study investigates the impact of government responses to COVID-19 on market reactions to dividend announcements of companies in five ASEAN countries, namely Malaysia, Thailand, Vietnam, Indonesia and the Philippines. These countries were selected due to the significant role of the countries' regional stock market and their respective varying levels of government intervention during the pandemic (Mishra and Mishra, 2021). The study focuses on how policy responses influenced investor sentiment and dividend-related market reactions, providing insights into the sensitivity of these stocks to government measures amid economic uncertainty. Accordingly, this exploration examined dependent, independent and control variables. Market reactions to dividend announcements served as the independent variable within this context. The dataset used comprised 5,648 dividend announcements made by different companies listed in ASEAN-5 countries from 2020 to 2022, as presented in Table 1. It is also important to state that the event study method was adopted for the investigation, building on previous explorations that examined market reactions to dividend announcements (Pandey and Kumari, 2022). The used data were obtained from the Investing Website Data Base (www.investing.com). Furthermore, within the event window, three types of dividend announcements were analyzed, namely dividend increase, dividend decrease and no change in dividend announcements, based on each company. In accordance with Kumar (2017), 5 days before and 5 days after announcements were considered as the pre-event and post-event periods, respectively. Additionally, before the event window, 90 trading days were dedicated to improving accuracy and reducing bias in the obtained results.
Total dividend announcements from 2020 to 2022 in 5 ASEAN countries
| Countries | Dividend announcements | Total dividend announcements | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Increase | Decrease | No change | ||||||||
| 2000 | 2021 | 2022 | 2000 | 2021 | 2022 | 2000 | 2021 | 2022 | ||
| Malaysia | 171 | 192 | 164 | 243 | 215 | 179 | 230 | 173 | 172 | 1,739 |
| Thailand | 315 | 322 | 130 | 341 | 361 | 130 | 240 | 210 | 83 | 2,132 |
| Vietnam | 102 | 98 | 76 | 82 | 78 | 89 | 45 | 38 | 33 | 641 |
| Indonesia | 86 | 109 | 29 | 119 | 96 | 31 | 122 | 52 | 15 | 659 |
| Philippines | 53 | 35 | 71 | 53 | 33 | 95 | 64 | 20 | 53 | 477 |
| All Countries | 727 | 756 | 470 | 838 | 783 | 524 | 701 | 493 | 356 | 5,648 |
Market reactions to dividend announcements were measured using abnormal and cumulative abnormal rates of return (Pandey and Kumari, 2022; Al-Khasawneh et al., 2024) as follows:
The normal rate of return is given by:
The normal rate of return is given by:
The cumulative abnormal rate of return:
where Ri,t is the return rate of stock i on the trading day t, is the return rate of the trading market and αi and βi are the regression coefficients. The expected normal return of individual stock i is calculated when αi and βi remain stable during the estimation period. Furthermore, is the abnormal return rate of stock i on the trading day t, which was obtained by subtracting the expected from the actual return, and is the cumulative abnormal return rate of stock i in the event window period (t1, t2).
The independent variable in this study used the stringency index, obtained from the OxCGRT, to measure government responses to COVID-19. Typically, the stringency index comprises nine metrics, namely school closures, workplace closures, cancellation of public events, restrictions on public gatherings, public transport closures, stay-at-home requirements, public information campaigns, restrictions on internal movements and international travel controls. Each metric was assigned a value between 0 and 100, and the index for any given day was calculated as the mean score across these nine metrics. A score of 0 shows no restrictions, while 100 represents the strictest policies.
Following Pandey and Kumari (2022), Yudaruddin and Lesmana (2024), Hassanein (2022) and Kumar (2017), this study incorporates additional control variables into empirical models to eliminate the bias associated with omitted variables such as company size (SIZE), profitability (ROA), systemic risk (BETA), cash holding (CASH), leverage (LEV) and company age (AGE). Moreover, a robust standard error was conducted regressively to analyze the effect of government responses to COVID-19 on market reactions to dividend announcements as follows:
where market reactions to dividend announcements were measured by cumulative abnormal returns (CAR). CARi,t is the cumulative abnormal return of countries and company i for the event window t. CAR is the cumulative abnormal return from days +1 to −1, where dividend is declared on day 0. The choice of this narrow window follows prior studies such as Pandey and Kumari (2022) and Kumar (2017), which argue that a short event window is more effective in isolating the immediate market reaction and minimizing the influence of confounding events. The (−1, +1) specification allows for the capture of any information leakage or anticipation effects before the announcement, as well as initial investor response immediately after the event. To ensure the robustness and reliability of the results, this study also conducts additional estimations using alternative event windows, specifically (0, +1), (0, +2), (−2, +2) and (−5 to +5) as part of the robustness checks. Meanwhile, measurements of the dependent and control variables are reported in Table 2.
Statistic descriptive (Obs. = 5,648)
| Variables | Variables | Mean | Median | Std. Dev |
|---|---|---|---|---|
| CAR [−1, +1] | Three days (−1 to +1) of cumulative abnormal returns (CAR) around the day of dividend announcements | −0.025 | −0.02 | 0.056 |
| RESPONSE | The Stringency Index (a value between 0 and 100) | 53.361 | 57.618 | 20.358 |
| SIZE | Firm size, measured by the log of market capitalization of the firm | 23.678 | 22.862 | 3.3021 |
| ROA | Profitability, measured by returns on assets | 8.0145 | 6.1407 | 7.1307 |
| BETA | BETA is the systematic risk | 0.6155 | 0.5403 | 0.4732 |
| CASH | Cash holding is cash on hand on total assets | 14.617 | 9.9746 | 13.714 |
| LEV | Leverage is a total liability on total equity | 98.91 | 52.795 | 120.95 |
| AGE | AGE is log of age of company | 3.4441 | 3.4965 | 0.6046 |
As previously stated, this study aims to identify whether government responses to COVID-19 affect market reactions to dividend announcements of companies in ASEAN-5 countries. To achieve this objective, regression analysis was adopted in the third stage. In the first stage, the equation of government responses to COVID-19 and a set of control variables was regressed as in Eq. (3). Accordingly, in the second stage, the estimation conducted in Eq. (3) was repeated for samples categorized based on the five observed countries and types of dividend policy (increase, decrease and no change in dividend announcements). In order to get a better insight into the effect of government responses on market reactions, samples of larger and smaller company sizes, profitability and leverage of companies were compared. Finally, a series of robustness tests were performed to ensure the results' consistency. These tests were carried out to evaluate the strength and consistency of the results obtained.
4. Result and discussion
4.1 The effect of government responses to COVID-19 on market reactions to dividend announcements
This paper examines the impact of government responses to COVID-19 on market reactions to dividend announcements by companies in five ASEAN countries. Before conducting the regression analysis, the results of descriptive statistics were first presented, and all multicollinearity-related concerns were addressed amicably. Table 2 presents an overview of the descriptive statistics, while Table 3 accompanies that none of the independent variables had strong correlations.
Matrix correlation
| Variables | Response | SIZE | ROA | BETA | CASH | LEV | AGE |
|---|---|---|---|---|---|---|---|
| RESPONSE | 1.0000 | ||||||
| SIZE | 0.1618*** | 1.0000 | |||||
| ROA | −0.0590*** | 0.0776*** | 1.0000 | ||||
| BETA | −0.0596*** | 0.0703*** | 0.0265** | 1.0000 | |||
| CASH | 0.1253*** | −0.0080 | 0.3134*** | 0.0141 | 1.0000 | ||
| LEV | 0.2999*** | 0.2167*** | −0.2538*** | 0.0786*** | −0.1539*** | 1.0000 | |
| AGE | 0.0083 | 0.1038*** | 0.0135 | 0.0092 | 0.0742*** | 0.1594*** | 1.0000 |
Note(s): *, ** and *** indicate significant values at 1%, 5% and 10%, respectively
As shown in Table 4, government responses to COVID-19, measured using the stringency index, had a significant negative effect on market reactions to dividend announcements, thereby supporting H1. These results suggested that stringent government measures during the pandemic significantly influenced market sentiment regarding corporate strategic decisions, such as dividend announcements. In this context, strict government policies may have led to a significant increase in uncertainty and market volatility, thereby intensifying investor reactions to company actions in the observed ASEAN countries. Considering these insights, the present study reinforces the elucidation that government interventions during crises play a critical role in shaping market responses to the strategic decisions of companies, including dividend announcements.
Effect of government response to COVID-19 on market reaction to dividend announcements; baseline regression
| Variables | Dependent variables: CAR (−1 to +1) | |||
|---|---|---|---|---|
| (1) | (2) | (3) | (4) | |
| RESPONSE | −0.000065* | −0.0000586* | −0.0000793** | −0.0000873** |
| (−1.96) | (−1.75) | (−2.09) | (−2.26) | |
| SIZE | 0.0004792* | 0.0006419** | ||
| (1.78) | (2.29) | |||
| ROA | −0.000289** | −0.0004057*** | ||
| (−2.46) | (−3.21) | |||
| BETA | −0.0012882 | −0.0008852 | ||
| (−0.69) | (−0.45) | |||
| CASH | −0.0000458 | −0.0000326 | ||
| (−0.72) | (−0.49) | |||
| LEV | −1.03e−.0 | 2.87e−06 | ||
| (−0.13) | (0.35) | |||
| AGE | −0.0016738 | −0.0022073* | ||
| (−1.39) | (−1.66) | |||
| Constant | −0.0212971*** | −0.0172443*** | −0.0222249*** | −0.0198014** |
| (−11.18) | (−4.29) | (−3.34) | (−2.36) | |
| Sector | No | Yes | No | Yes |
| Obs | 5,589 | 5,589 | 5,589 | 5,589 |
| R-Square | 0.0006 | 0.0062 | 0.0032 | 0.0103 |
Note(s): *, ** and *** indicate significant values at 1%, 5% and 10%, respectively
The observed negative results are in correspondence with the results of Ashraf (2020), who reported that government announcements imposing restrictions had an adverse impact on international stock market returns. However, the results are dissimilar to the conclusions of Narayan et al. (2021), Deng et al. (2022) and Yudaruddin (2023), who found that government responses to COVID-19 had a positive effect on dividend announcements. The observations made were dissimilar to the report of Prakash and Yogesh (2021), who suggested that dividend announcements positively influenced companies during the pandemic.
The result on how stringent government responses negatively affect market reactions challenges the assumption that government policies universally support company dividend decisions during crises. This simply implies that while government interventions are often essential for crisis management, the impact of such interventions on the financial market is complex and multifaceted. Additionally, the negative market reactions to dividend announcements under strict policy conditions suggest that investors perceive such measures as exacerbating economic uncertainty and undermining confidence in company financial stability.
4.2 The effect of government responses to COVID-19 on market reactions to dividend announcements by countries
In this study, the impact of government responses on market reactions to dividend announcements across different countries was analyzed, as presented in Table 5. The obtained results show a significant negative effect of government interventions on market reactions, with this impact being particularly pronounced in Thailand and Indonesia. These results invariably suggest that investors in the observed countries were specifically concerned about the economic implications of COVID-19, hence prompting the implementation of stringent policies such as lockdowns, travel restrictions and social distancing measures. Amidst the uncertainty surrounding COVID-19, many companies continued to distribute dividends to communicate with investors. However, previous studies have reported that dividend announcements during the pandemic did not elicit significant market reactions (Pandey and Kumari, 2022). The indication from these results lies in the response of investors from Thailand and Indonesia to the government’s handling of the COVID-19 situation. The significant negative influence of government responses on dividend announcements suggests that investors perceived the stringent policies as indicative of more significant economic uncertainty and risk. The imposition of lockdowns, travel restrictions and social distancing measures reflected the severity of the pandemic’s impact, leading investors to adopt a cautious stance.
Effect of government response to COVID-19 on market reaction to dividend announcements by countries
| Variables | Dependent variables: CAR (−1 to +1) | ||||
|---|---|---|---|---|---|
| Malaysia | Thailand | Vietnam | Indonesia | Philippines | |
| (1) | (2) | (3) | (4) | (5) | |
| RESPONSE | 0.0000127 | −0.000106* | −0.0002571 | −0.000303* | −0.0001534 |
| (0.27) | (−1.71) | (−1.23) | (−1.82) | (−0.94) | |
| Constant | −0.075568*** | −0.0583567*** | −0.1311847 | −0.1079158*** | −0.0331911 |
| (−3.96) | (−3.22) | (−1.22) | (−2.65) | (−0.66) | |
| Control variables | Yes | Yes | Yes | Yes | Yes |
| Sector | Yes | Yes | Yes | Yes | Yes |
| Obs | 1,739 | 2,073 | 641 | 659 | 477 |
| R-Square | 0.0263 | 0.0413 | 0.0377 | 0.0379 | 0.0442 |
Note(s): *, ** and *** indicate significant values at 1%, 5% and 10%, respectively
4.3 The effect of government responses to COVID-19 on market reactions to dividend announcements by dividend type
This section includes an examination of the impact of government responses to COVID-19 on market reactions to dividend announcements, categorized by the types of announcements (increase, decrease and no change), as presented in Table 6. The analysis conducted in this regard showed a significant negative correlation between government responses and both dividend reductions and no-change announcements, thereby supporting H2. These results suggest that the implementation of stringent government policies to mitigate the spread of COVID-19 coincided with companies announcing either reduced or unchanged dividends, and this invariably triggered negative market reactions. Accordingly, responses of investors to these announcements during the pandemic significantly showed investor concerns about company resilience amid global uncertainty. Our results align with existing literature indicating that as the challenges posed by COVID-19 intensified, dividend payments became less effective due to investors' heightened pessimism in confronting global uncertainty (Tinungki et al., 2022). These results hold contextual significance for ASEAN countries, given investors' escalating pessimism after COVID-19. This sentiment is attributed to government tightening measures, which are perceived as exacerbating the downturn and interpreting dividend announcements of reductions or no change as unfavorable signals for companies grappling with the pandemic (Ashraf, 2020; Robiyanto and Yunitaria, 2022; Ali, 2022; Pettenuzzo et al., 2023).
Effect of government response to COVID-19 on market reaction to dividend announcements by dividend types
| Variables | Dependent variables: CAR (−1 to +1) | ||
|---|---|---|---|
| Dividend increase announcements | Dividend decrease announcements | No change in dividend announcements | |
| (1) | (2) | (3) | |
| RESPONSE | −0.0000141 | −0.0001555*** | −0.0001245* |
| (−0.19) | (−2.77) | (−1.89) | |
| Constant | −0.0365254** | −0.0055947 | −0.0377501*** |
| (−2.55) | (−0.45) | (−2.66) | |
| Control variables | Yes | Yes | Yes |
| Sector | Yes | Yes | Yes |
| Obs | 2,236 | 2,007 | 1,346 |
| R-Square | 0.0228 | 0.0187 | 0.0167 |
Note(s): *, ** and *** indicate significant values at 1%, 5% and 10%, respectively
4.4 The effect of government responses to COVID-19 on market reactions to dividend announcements by company characteristics
Table 7 presents the empirical results obtained in this study on the influence of government responses to COVID-19 on market reactions to dividend announcements, considering company characteristics such as size, profitability and leverage. We identify several significant findings as follows: Firstly, the results indicate that government responses to COVID-19 exert a more pronounced impact on market reactions to dividend announcements for large companies compared to small ones. This observation suggests that the scale of a company influences how it responds to government interventions during the pandemic. Secondly, companies exhibiting higher profitability levels are more susceptible to the influence of government responses than those with lower profitability. This finding underscores the importance of financial performance in understanding market reactions during times of crisis. Thirdly, we document that government responses to COVID-19 exert a stronger influence on companies with lower leverage levels compared to those with higher leverage. This finding suggests that companies with less debt are more sensitive to government policies during the pandemic.
Effect of government response to COVID-19 on market reaction to dividend announcements by firm size, profitability and leverage
| Variables | Dependent variables: CAR (−1 to +1) | |||||
|---|---|---|---|---|---|---|
| SIZE | ROA | LEV | ||||
| Large | Small | High | Low | High | Low | |
| (1) | (2) | (3) | (4) | (5) | (6) | |
| RESPONSE | −0.0001986*** | −0.0000331 | −0.0001344** | −0.0000499 | 0.0001805 | −0.0001166*** |
| (−2.60) | (−0.77) | (−2.00) | (−1.05) | (1.44) | (−2.87) | |
| Constant | −0.0141754* | −0.0011537 | −0.0388945*** | −0.0160977 | −0.0444664*** | −0.0193319** |
| (−1.72) | (−0.13) | (−3.07) | (−1.51) | (−2.57) | (−2.14) | |
| Control variables | Yes (exclude SIZE) | Yes (exclude SIZE) | Yes (exclude ROA) | Yes (exclude ROA) | Yes (exclude LEV) | Yes (exclude LEV) |
| Sector | Yes | Yes | Yes | Yes | Yes | Yes |
| Obs | 2,430 | 3,159 | 2,130 | 3,459 | 1,590 | 3,999 |
| R-Square | 0.0182 | 0.0152 | 0.0179 | 0.0110 | 0.0160 | 0.0146 |
Our findings show that government responses to COVID-19 had a significant negative impact on market reactions to dividend announcements in five ASEAN countries, especially in Thailand and Indonesia, where stricter policies raised investor concern. The effect was more pronounced for dividend decrease and no-change announcements, suggesting that investors viewed stringent policies as signals of greater economic uncertainty and reduced firm stability. At the firm level, the impact was stronger for large, highly profitable and low-leverage firms. These results support the market efficiency hypothesis (Fama, 1970), where investors quickly incorporate policy changes into stock prices, and the signaling hypothesis (John and Williams, 1985), as investors reacted negatively to signals of reduced earnings stability. Our findings are consistent with Ashraf (2020) and Robiyanto and Yunitaria (2022), who found that strict government measures intensified investor pessimism and led to negative market responses. However, our results differ from Narayan et al. (2021) and Deng et al. (2022), who reported positive market effects, underscoring the context-dependent nature of investor reactions during crises.
4.5 Robustness check
To ensure accuracy and consistency of the results, several additional tests were conducted. For example, a re-estimation of the impact of government responses to COVID-19 on market reactions to dividend announcements was conducted using alternative measures of cumulative abnormal return and government response indices, with country dummies as control variables. First, although the initial analysis did not include country dummies, they were introduced in the robustness check to verify the stability of baseline regression results (Table A1). Second, the impact of government responses to COVID-19 on market reactions to dividend announcements was reassessed using alternative cumulative abnormal return measures for periods 0 to +1, 0 to +2 and −2 to +2, as shown in Table A2. Third, the initial government response measure was replaced with the Containment and Health Index to further validate the results (Table A3). Overall, the findings confirmed that the impact of government responses to COVID-19 on market reactions to dividend announcements remains consistent across these alternative specifications.
5. Conclusion
This study investigated the relationship between company dividend announcements and market reactions during the COVID-19 pandemic in ASEAN countries, with a particular focus on how government responses influenced investor behavior. The findings reveal that stringent government policies significantly and negatively impacted market reactions to dividend announcements. This underscores the complex interplay between public policy, corporate financial decisions and investor sentiment in times of crisis. The results highlight the sensitivity of financial markets to external policy shocks and the importance of understanding market expectations during uncertain periods.
The study offers several actionable insights for companies, investors and policymakers. For companies, especially those operating in ASEAN countries, dividend policy decisions during crisis periods should be made with careful consideration of the prevailing government policy environment and investor sentiment. The analysis presented in this study shows that during periods of stringent government responses to COVID-19, such as lockdowns and fiscal restrictions, dividend announcements involving reductions or no change were significantly associated with negative abnormal returns. This implies that maintaining or cutting dividends during crises, without proper explanation, may be interpreted by investors as a sign of financial weakness or uncertainty about future performance. Therefore, companies are encouraged to support such decisions with clear and transparent communication. This includes providing supplementary disclosures, such as forward-looking statements, financial projections or explanations related to liquidity and capital management, in order to maintain investor confidence.
For investors, the study highlights the importance of incorporating government policy context into their decision-making. Government responses, especially those involving mobility restrictions and economic controls, influenced how the market interpreted dividend announcements. In countries like Thailand and Indonesia, where COVID-19 policy measures were among the most stringent in the region, investor reactions to dividend announcements were notably negative. For example, in Thailand, companies that announced unchanged or reduced dividends during periods of strict lockdowns faced adverse market reactions due to growing investor concerns about the long-term economic impact. Similarly, in Indonesia, investor responses to dividend announcements were also negatively affected when policy uncertainty was high, reflecting a cautious stance and preference for corporate financial resilience. These findings underline the interconnectedness between government interventions and corporate communication on their investor behavior during times of heightened uncertainty.
Since the government policy is weakening the dividend announcement effect on market reactions. Therefore, policymakers need to balance public health priorities with financial market stability. Overly stringent policies may unintentionally reduce investor confidence, even when companies make favorable announcements. To address this, governments should enhance communication about the rationale and expected duration of interventions and provide forward guidance to stabilize investor expectations. Transparent and predictable policy responses may help mitigate negative spillovers on capital markets during crises.
Despite the valuable contributions, this study has certain limitations. First, its focus on selected ASEAN countries may constrain the generalizability of the findings to other regions. Second, the study relies on a cross-sectional regression design, which does not fully account for potential endogeneity between firm characteristics, dividend decisions and the timing of government responses. For example, firms with different financial profiles may respond differently to the same policy environment or governments may introduce measures in reaction to sector-specific conditions. While several control variables were included to mitigate omitted variable bias, we acknowledge this methodological limitation. Future research should explore the use of instrumental variables, lagged structures or panel data approaches to better address endogeneity concerns. Additionally, expanding the scope to include cross-country comparisons beyond ASEAN would enrich the understanding of how government interventions shape market reactions in different institutional and economic settings.
The supplementary material for this article can be found online.
