The impact of government nonmarket policy on a firm's financial performance: a lesson from COVID-19 pandemic lockdown's policy

Rayenda Khresna Brahmana, Doddy Setiawan, Irwan Trinugroho

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

Purpose: This paper examines the effect of lockdown on a firm's financial performance. The authors aim to fill in the debate over the corporate world's repercussions from governments' COVID-19 response. Therefore, it is imperative to understand what effect the lockdown policy has on firm financial performance. Design/methodology/approach: The study data are cross-sectional, covering a sample of 246 listed firms in Indonesia. The lockdown policy and period data were retrieved from the Indonesian Ministry of Health COVID-19 special task force website. The authors’ empirical model for performance specification is based on annual data, following a common performance function in economics and finance literature. In addition to controlling for the standard error and province effect, the authors also controlled the COVID-19 cases and the province effect. Findings: The lockdown deteriorates the firm's profitability, but it is not up to making the firms at financial distress level. Simply put, lockdown erodes the profitability significantly, leading to declining performance; however, it does not mean the firms generate default. Research limitations/implications: Several shortcomings in the authors’ empirical setup need to be tackled for future research. For example, the study findings may limit the short-run effect but not the long-run effect (5–10 years after the pandemic). The findings also do not give room to justify that lockdown should not be imposed due to its deteriorating effect on the corporate world. Therefore, the authors leave this as a scope for future research. Originality/value: This research is among the pioneer papers evaluating the effect of the government policy for mitigating the repercussions of COVID-19, and it reveals how this policy affects corporations.

Original languageEnglish
Pages (from-to)307-322
Number of pages16
JournalAsia-Pacific Journal of Business Administration
Volume15
Issue number2
Early online date22 Apr 2022
DOIs
Publication statusPublished - 24 Feb 2023
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2022, Emerald Publishing Limited.

Keywords

  • Firm performance
  • COVID-19
  • Lockdown area
  • Lockdown policy

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Public Administration

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