Fundamental analysis of the firm on stock returns in the uncertainty caused by the COVID-19 pandemic: The case of emerging economy

Abstract

This paper refers to a previous study of Barua (2020), which shows the impact of the pandemic on aggregate demand and supply. The novelty and the purpose of this study is to examine the fundamental impact arising from the uncertainties created by the COVID-19 pandemic caused by the Indonesian government restrictions policy (spectrum) on stock returns of the sample companies listed on the Indonesia Stock Exchange (IDX) with a minimum of 200 trading days in 2020 from 2016 to 2020. This study used multiple regression analysis and cross-sectional for the cumulative abnormal return (CAR). The result shows that the fundamentals tested had no significant effect on cumulative abnormal returns. On the other hand, only the current ratio showed a significant effect on Spectrum 1 and 4; Spectrum 1 had a positive effect while Spectrum 4 had a negative effect, and the debt service coverage ratio (DSCR) had a slightly significant effect on Spectrum 1. The study results indicate that each spectrum had different levels of uncertainty, which gave rise to different perspectives for each investor. This study provides a perspective for investors to see different levels of uncertainty on the current ratio (CR) and DSCR as determinants of fundamentals for investment consideration.