The Severity of COVID-19 and Firm Market Value: How Does It Affect Firm?

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*Corresponding Author: anantoprabowo@outlook.com

The Severity of COVID-19 and Firm Market Value: How Does It Affect Firms?

ANANTO PRABOWO*

Faculty of Management and Leadership, Universitas Tanri Abeng, Indonesia

Abstract: This paper is prompted by the lack of relevant studies on the implication of dangerous infections of contagious diseases caused by Coronaviruses for firms in Indonesia. Therefore, the purpose of this study is to examine the effect of the severity of Covid-19 infection on the market value of firms. Research of the Covid-19 severity on firm market value is presented in this study based on quarterly information of Indonesian listed firms. By employing a generalized least squares approach, the study concluded that the severity of Covid-19 has resulted in a significant decline in the market value of firms in Indonesia. Further findings regarding cash holdings suggest that substantial cash reserves can mitigate the adverse effects of Covid-19 by acting as a cushion to absorb shocks. The outcomes of this research complement the prevailing literature on Covid-19 and the market value of firms and provide considerations for both theoretical and practical applications.

Keywords: Cash Holding; Covid 19; Firm Market Value; Firm Value

Abstrak: Penelitian ini dilatarbelakangi oleh kurangnya studi yang relevan tentang implikasi infeksi berbahaya penyakit menular yang disebabkan oleh Coronavirus pada perusahaan di Indonesia. Oleh karena itu, tujuan dari penelitian ini adalah untuk menguji pengaruh tingkat keparahan infeksi Covid-19 terhadap nilai pasar perusahaan. Penelitian tentang tingkat keparahan Covid-19 pada nilai pasar perusahaan disajikan dalam studi ini berdasarkan informasi triwulanan dari perusahaan yang terdaftar di Bursa Efek Indonesia. Dengan menggunakan pendekatan generalized least squares, studi ini menyimpulkan bahwa tingkat keparahan Covid-19 telah mengakibatkan penurunan nilai pasar perusahaan di Indonesia secara signifikan.

Temuan lebih lanjut mengenai kepemilikan uang tunai menunjukkan bahwa cadangan uang tunai yang besar dapat mengurangi dampak buruk Covid-19 dengan bertindak sebagai bantalan untuk menyerap guncangan. Hasil dari penelitian ini berkontribusi untuk melengkapi literatur yang telah ada tentang pandemi Covid-19 dan nilai pasar perusahaan serta memberikan masukan secara teoretis dan praktis.

Kata Kunci : Covid-19; Kepemilikan Uang Kas; Nilai Perusahaan; Nilai Pasar

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1. Introduction

As of early December 2019, the CoronavirusCoronavirus rampant had become a worldwide health crisis, which started in Wuhan, China. A worldwide coronavirus outbreak, Covid-19, was declared a pandemic by the World Health Organization on March 11, 2020, making it the most severe, life-threatening, and infectious disease in the world (WHO, 2020). Amongst the most rigorous public health detriments, the virus has infected over 225 million people with over 4,5 million deaths worldwide. The number of people infected in Indonesia was over 6.4 million, while over 158 thousand died as of September 30, 2022. Pandemics have detrimental effects on public health worldwide, not only on the healthcare system but also on the economy and the financial markets.

The continuation of the Covid-19 outbreak has erupted the number of confirmed cases worldwide. To restrict the spread of CoronavirusCoronavirus, many nations have implemented several policies to limit population mobility and community gathering activities. The policies include closing cities or borders, tourist attractions, restaurants, and shopping centers. Besides these closures, transportation, shipping, cultural events, and other restrictions are placed. Some countries closed down their economic systems during the Covid-19 outbreak, experiencing a major collapse of the economy. Distinct from the financial crises in 1997 and 2008, the Covid-19 crisis did not embark upon a financial crisis, but as a public health epidemic affecting economies and financial markets is more extensive when compared with prior financial crises (F. Zheng et al., 2021). This outbreak has directly impacted public health and government budget allocations, stirring up the enormous loss in transportation, tourism, food and beverages, retail, and other related sectors or industries, decreasing investors' confidence.

Worldwide stock markets responded to the accelerated spread of Covid-19 along with the World Health Organization or WHO announcement of Covid-19 as a global epidemic or pandemic. Dow Jones Industrial Average, or DJIA, fell by 2353 points on March 12, 2020, and over a week after, the DJIA dropped close to 3000 points, marking the largest drop in share prices since 1987, referred to as "Black Monday". In one month, the UK's FTSE swung by 28.73%, German's DAX dropped by 33.37%, France's CAC

231 fell by 33.63%, Japan's NIKKEI fell by 26.85%, the Indian SUNSEX came down by 17.74% (Aslam et al., 2020) and Indonesia's Composite Index IHSG by 16.75%

(Indonesia Stock Exchange, 2020). These market reactions support the evidence that worldwide stock markets are experiencing steep market correction caused by the Covid- 19 pandemic. The outbreak caused variations in daily Covid-19 infections, affecting constant changes in investors' assessment of firm value (Chen et al., 2021). In historical events, a great number of public calamities, considering the Covid-19 outbreak, have resulted in significant negative effects on the financial market and triggered the submergence of financial risk in the market, which later induces problems in the financial system (Li et al., 2021).

Covid-19 has a complex and multifaceted relationship with firm market value.

This pandemic has had a significant impact on the global economy, affecting firms in a variety of ways. Some firms have benefited from the pandemic, while others have suffered negative effects. Several factors can influence the impact of Covid-19 on the value of a firm, including the industry, the size, and the location of the firm. For example, the outbreak has increased demand for products and services in the healthcare industry. At the same time, travel restrictions and lockdowns have negatively affected firms in the travel and hospitality industry.

Because the Covid-19 outbreak has brought on a new great global crisis, which conveys a forthright destructive impact in Indonesia and worldwide, it will significantly impact the market value of companies. The recession in Indonesia was milder than its counterparts in the emerging markets and developing economies (excluding China), resulting in 1.8 million unemployed Indonesians and another 3.2 million people leaving the job market between February 2020 and 2021. Young people entering the labor market have decreased by approximately three hundred thousand, and 2.8 million more people live in poverty (The World Bank, 2021).

There has been considerable research on Covid-19's impact on the financial markets and its value (Au Yong & Laing, 2021; Li et al., 2021; Qiu et al., 2021; Vo, 2017; Wang et al., 2021). Notably, limited research has been conducted regarding Covid-19's severity impact on the financial markets. It has been observed that the

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pandemic's severity has negatively impacted the value of US-listed companies up to 2020 (Yang et al., 2023). During March 2020-June 2021, Covid-19 deaths adversely affected stock market liquidity in technology firms in Indonesia, Thailand, Singapore, and the Philippines (Priscilla et al., 2022). G20 countries, including Indonesia, firms listed on the MSCI index have shown a positively insignificant effect of Covid-19 death cases towards market value up to mid-2020 (Li et al., 2021). To the author's knowledge, there has been no firm-level analysis of firms' market values during Covid-19, which takes into account the severity of CoronavirusCoronavirus as represented by fatality, mortality, and active case rates during the pandemic era in Indonesia from 2020 to 2022.

To bridge this gap, this study focuses on the deterioration of firms' market value during Covid-19 outbreaks to determine whether the existence and severity of Covid-19 infections affected their market value. As of September 14, 2021, Indonesia ranks no 13 worldwide for the highest number of confirmed cases and 7 in deaths because of Covid 19 (WHO, 2021). Investigating the influence of Covid-19 on the firm's market value during the outbreak in Indonesia from 2020Q1 to 2022Q3 is worthwhile. By examining the impact of Covid-19 on the market value of firms in Indonesia, we can better understand how the epidemic has affected Indonesia's economy and its firms' business activities. Additionally, it can assist policymakers and businesses in determining the best way to deal with the pandemic and its economic effects.

The research explores the issues mentioned above from different angles, including estimating the repercussion of distinct Covid-19 measures (fatality rate, mortality rate, and active cases) on firms' market value relationship. The research dataset includes quarterly data that allowed for a substantial amount of information to be collected from Indonesia's listed firms. Several firm-specific controls have been included to isolate the impact of Covid-19 on a firm's market value. Concerning Covid-19, it is important to focus on the firm level because it provides valuable insight into the effects of the pandemic on businesses and the economy. Because of the pandemic, firms across many industries have been affected, consumer behavior has changed, supply chains have been disrupted, and government policies have changed. A better understanding of the impact

233 of Covid-19 on firms will enable us better to understand the impact of the virus on the economy.

The primary aim of this research is to investigate how the level of severity of Covid-19 affects the market value of firms throughout Indonesia. Considering the outbreak of the disease, there is extreme uncertainty about what impact the health crisis will have on Indonesian firms when it impacts them, how they can offset the negative impact, and what impact it will have on the value of the firms. The conclusion of this study is hoped to serve as a reference for investors and authorities worldwide, including those in Indonesia. First, to assist potential investors and portfolio managers in determining whether they should diversify their risk across stocks during a public emergency, such as the Covid-19 pandemic. Second, alerting financial regulators and/or policymakers to oppose market losses during Covid-19 to promote financial market stability policies.

2. Theoretical Framework and Hypothesis Development 2.1. Theoretical Framework

As part of the research design, the study focuses on signaling theory (Spence, 1973) and event system theory (Morgeson et al., 2015) to support the conceptual framework of this study. In this study, the signaling theory proposes that the severity of Covid-19 results from unintended negative signals from investors or shareholders, which compelled them to seek further information from independent sources about the firms (signalers), reducing the existing information asymmetry. If there is much noise in the market, investors and shareholders might need help understanding the signal. The signal receivers, such as investors, may seek different signals based on the environment instead of conventional signals to reduce information asymmetry.

Under the event system theory, salient events such as Covid-19 can significantly impact firm behavior instead of normal occurrences. As a result of lockdown restrictions, travel prohibitions, airport closures, and human contact restrictions, the Covid-19 pandemic remains one of the most significant events of the 21st century. In the event of a pandemic, the event date is when information regarding pandemic-related

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news is first published in the media. Based on this framework, the study explores the influence of pandemics on the market value of firms and how the time and place of the event impact these signals.

2.2. Hypothesis Development

The ongoing research has viewed maximizing value for stakeholders as an important determination. Shareholder value maximization is purported to be sustained over time when administered to a greater stakeholder value (Freeman, 1984; Freeman et al., 2010; Smith, 2003). Firms that focus on stakeholder value can preserve firms value despite the possibility that broad-ranging stakeholder value deteriorates during a Covid-19 outbreak (Bose et al., 2021). Researchers have conducted fewer studies in countries with a different focus and a smaller sample period. For instance, CSR's ability to mitigate the Covid-19 effect on firm value in China for January 2020 to February 2020 (Qiu et al., 2021), product line variation to weaken the effect of Covid-19 on firm value in China from February to March 2021 (Wang et al., 2021) and Covid-19, firm value for five firms in India for pre and post Covid-19 assumptions (Mohanty & Mishra, 2021) and firm value and Covid-19 among Indonesian firms for the first two quarters of 2018-2020 (Nugroho, 2021). A study conducted in 47 countries revealed that countries with various infections and deaths suffer a significant decrease in firm market value (Bose et al., 2021). The presence of misinformation between managers and the market gives rise to a harmful situation (Satrya Wibowo & Fuad, 2018) that exacerbates the challenges faced during the health crisis of Covid-19.

The Covid-19 pandemic restricts economic activity, causing a decrease in manufacturing output, a decrease in consumer demand, a decline in business success rates, and a rise in unemployment. An outbreak of a virus pandemic in countries such as Indonesia will likely have a greater negative effect on the capital market. The severity of Covid-19 signals how much the firm's market value has declined because of the recession. The study proposes the following hypothesis as a first hypothesis:

H1: There is a negative correlation between Covid-19 infections and the market value of Indonesian firms.

235 Covid-19 has a considerable impact across multiple facets that have a detrimental impact on cash flow. During the outbreak, firms have difficulties earning the predetermined revenue, and the worst that could happen cannot earn revenue for a period. The covid-19 pandemic has adversely impacted the firm's revenue, with the most important impact being the revenue growth rate (F. Zheng et al., 2021). Therefore, the firms will experience a disruption in cash flow. In this crisis, money's value can decline, and the effect on the cash flow can be devastating (Mohanty & Mishra, 2021). When considering pandemics, firms must pay special attention to cash flow management, covenant management, and refinancing (Golubeva, 2021). Here, the main aim is to bring high cash levels to the firms to offset the negative impact of Covid-19 on their business operation. The high supply of cash acts as a cushion instrument leaning on apparent distress from external sources and being able to sustain regular business activities when confronted with financial problems (Jiang et al., 2021). Cash reserves are critical to a firm's survival during a crisis, particularly during the Covid-19 pandemic. A firm that possesses the capability of raising funds has a clear competitive advantage concerning competing against Covid-19 outbreaks (Golubeva, 2021; Larcker et al., 2020)

Based on prior research, earnings, and cash flow information will be useful for investors in assessing the risk associated with a firm's market value. A positive signal for a firm is the ability to generate cash and profits in the past. The firm's ability to do so may serve as a buffer when facing adverse economic conditions. The holdings of cash are capable of improving the resilience of a firm to unexpected negative events, such as coronavirus outbreaks; as cash holdings of a firm can act as a buffer for economic and business activity during the event of Covid-19, the second hypothesis is:

H2: Indonesian firms' cash holdings positively correlate with their market values.

3. Research Method 3.1. Data

The research includes all listed firms in Indonesia between January 1, 2020, and September 30, 2022, in the analysis. This study uses the quarterly reports of firms from the Indonesia stock exchange (IDX), Refinitiv Eikon, and the firms' websites for

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2020Q1-2022Q3. This study excludes firms categorized in the financial sector because of the unique nature of accounting standards and reporting. Aside from that, the government plays a very active role in regulating the financial sector. The last exclusion is for firms with missing values in the variable of interest. The observations are based on firms' financial reports dating from the beginning of Covid-19 to the third quarter of 2022, which produced 6,909 accounting reports between 2020Q1 and 2022Q3.

The Covid-19 measurement is based on the fatality rate, mortality rate, and active cases for each quarter from 2020Q1 to 2022Q3. Data on Covid-19 accumulated cases, active cases, and death cases are available on the WHO website (https://covid19.who.int/table), which includes Covid-19 cases from around the world daily. The World Health Organization has declared a public health emergency of international concern regarding a novel Coronavirus known as Covid-19. WHO announced a pandemic of Covid-19 as the severe acute respiratory syndrome coronavirus number 2 (SARS-CoV-2) on March 11, 2020.

3.2. Variables Selection and Description

This study presents a detailed description of the dependent, independent, and control variables that are part of the study in the following sections. Table 1 provides a summary description of all these variables.

3.2.1. Dependent Variables

Market value is the dependent variable representing the firms' market value sign.

Firm value is used to understand the profitability of firms' short-term ability and to evaluate firms' future ability to produce profit (Yoon & Chung, 2018). Further, market value measures market performance, providing insight into future investment returns (Rossignoli et al., 2020). As a result, the market value reflects the firm's value by presenting the perceived institutions or firms' quality and investment risk, allowing investors' preference over traded firms. As used here, market value refers to the price at which one can sell part or all of the ownership of a firm in an open and competitive market. A share's closing price is multiplied by the total number of shares outstanding to determine market value.

237 3.2.2. Independent Variable

To apprehend the impact of the infections of Covid-19 on Indonesia-listed firms, the research applies Covid-19 and cash holding ratio (CHR) as independent variables.

Three variables are used to measure the main independent variable of interest, Covid- 19: (1) fatality rate (FR), which is derived from dividing the total number of deaths by the total number of confirmed cases, (2) mortality rate (MR), calculated by dividing the number of new deaths by the number of new cases, (3) Covid-19 active rate (CovR), calculated as the number of active cases divided by the number of confirmed cases. As another independent variable, the cash holdings ratio can determine whether the firm can survive a crisis. The benefit of cash holdings is the ability to alter risk during times of crisis (Jiang et al., 2021). The cash holding ratio (CHR) is a sum of cash and short- term investment at the end of a period divided by total assets.

3.2.3. Control Variables

This study controls several variables, as seen in equation (1). The study concludes that larger firms, as measured by size, have greater flexibility in conducting business operations than small firms (Bose et al., 2021), including during the Covid-19 pandemic; therefore, the study control firm size. The logarithm of total assets is a proxy for a firm's size. Firm efficiency is an important determinant of profitability (Duan &

Niu, 2020). Thus, allowing us to identify how efficient the firm's operational performance is. The study also controls leverage (LEV) to encapsulate financial distress (Bose et al., 2021). High leverage indicates the firm has a large liability, resulting in a greater likelihood of defaulting the debtor and experiencing bankruptcy. The study calculates leverage using a ratio between total liability and equity. To calculate a firm's return on assets (ROA), one divides its net income by its total assets, which displays how much profit is being generated from its total assets. It is also necessary to include Indonesia's Central Bank's GDP growth rate (GDP) as part of the calculations to control for Indonesia's aggregate economic outcomes.

3.3. Empirical Model

To analyze the ominous impact of Covid-19 on firms' market value, the research employs the regression method with a baseline model :

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MVit = α + β1 Covid-19it + β2CHRit +β3SIZEit + β4Levit + β5ROAit + β6GDPit

+ εit

(1)

Where the subscripts i and t present firm and time. Covid-19 is a substitute

independent variable for the FR, MR, and CovR. A second independent variable is the CHR. Size, Lev, ROA, and GDP make up the control variables.

Table 1.

Variable Description

Variables Acronym Description

Dependent Variable

Market Value MV Natural logarithm of the firm's fiscal closing share price multiplied by shares outstanding Independent Variable

Covid-19

- Fatality Rate FR The ratio of death to confirmed cases

- Mortality Rate MR The ratio of new death to new confirmed cases - Covid Active Rate CovR The ratio of active cases to confirmed cases Cash Holding Ratio CHR The ratio of cash and short-term investments to

total assets Control Variable

Size Size Natural logarithm of total assets

Leverage Lev The ratio of total liabilities to total assets Return on Assets ROA The ratio of net income to total assets Gross Domestic Product GDP Gross domestic product rate

4. Result And Discussion 4.1. Descriptive statistics

Table 2 depicts the summary statistics of dependent and explanatory variables transformed into natural logarithms within the research samples. Based on the market value of firms, the mean (median) market value of firms is IDR 6,280 billion (IDR 1,120 billion), showing that the market value of the firms is high in this study. The result is unsurprising because Covid-19 significantly affected businesses worldwide, including in Indonesia. In Indonesia, the mean (median) fatality rate (FR), mortality rate (MR), and active rate (CovR) for Covid-19 infections were 0.0364 (0.0298), 0.0329 (0.0265), and 0.171 (0.0810), showing that the average number of Covid-19 infections in Indonesia is quite high given the country's population. The mean (median) of the cash

239 holding ratio (CHR) is 0,171 (0.0583), which shows that firms hold, on average, 17%

of their assets in cash, which can act as a buffer during a Covid-19 outbreak. The mean (median) of firm size (Size) is IDR 8,560 billion (IDR1,790 billion), suggesting that the average of the total assets of the firms is IDR 8,560 billion available for use during the Covid-19 pandemic. Indonesian firms had a mean leverage (Lev) of 0.562, which suggests that 56.2% of capital came from liabilities during the Covid-19 outbreak. A profitability ratio of 0.00352 shows that firms have very low profitability of 0.35%

during Covid-19. The Indonesian economy grew at an average rate of 2.2% during the Covid-19 pandemic, with the lowest GDP correction being -5.32%.

Table 2.

Summary Statistics

Note: This table presents the descriptive statistics of all research variables. The quarterly sample comprises 6,909 observations, including 689 firms listed at IDX from March 31, 2020, to September 30, 2022. MV raw and size raw represents the original data before the natural logarithm transformation

4.2. Correlation Result

Table 3 presents the bivariate correlations between variables. Correlation coefficients below 0.80 and VIFs below five show no problems associated with multicollinearity between variables in a research model or otherwise. A correlation matrix calculated using Pearson's correlation coefficient shows that FR, MR, and CovR have a strong correlation. Other variables of the research do not show multicollinearity issues. Because of the multicollinearity between these Covid-19 proxy variables, we

Variables Obs Mean Median S. D Min Max

MV raw 6,909 6,28e+012 1,12e+012 1,59e+013 3,33e+010 1,05e+014

MV 6,909 27,8 27,7 1,80 24,2 32,3

FR 6,909 0,0364 0,0298 0,0177 0,0246 0,0890

MR 6,909 0,0329 0,0265 0,0222 0,00401 0,0890

CovR 6,909 0,171 0,0810 0,255 0,00101 0,858

CHR 6,909 0,111 0,0583 0,141 0,000504 0,726

Size raw 6,909 8,56e+012 1,79e+012 1,89e+013 3,11e+010 1,14e+014

Size 6,909 28,3 28,2 1,79 24,2 32,4

Lev 6,909 0,562 0,487 0,581 0,00499 4,93

ROA 6,909 0,00352 0,00387 0,0370 -0,180 0,134

GDP 6,909 0,0221 0,0351 0,0404 -0,0532 0,0707

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will analyze three independent variables of these proxies in three alternative regression models.

Table 3.

Correlation Matrix

Conf MR CovR CHR lnSize Lev ROA GDPG VIF

Conf 1 36.23

MR -0.6212 1 21.26

CovR -0.7018 0.8283 1 8.21

CHR 0.0404 -0.023 -0.0331 1 1.81

lnSize 0.0012 0.0077 0.0104 -0.0216 1 1.16

Lev -0.0061 -0.0014 -0.0017 -0.0996 -0.0666 1 1.1

ROA 0.1172 -0.0815 -0.089 0.166 0.173 -0.2919 1 1.03

GDPG 0.7404 -0.2402 -0.3928 0.0359 0.0011 -0.0034 0.0971 1 1.03

4.3. Multivariate Analysis

In multivariate analysis, variables are winsorized at a 1% level to minimize the impact of outliers. In addition, tests were conducted to check other necessary conditions, which included heteroscedasticity and autocorrelation, before using panel data regression. Breusch-pagan and white tests were conducted to check for heteroscedasticity, and the Wooldridge test to check for autocorrelation. Using the Chi- square test of the Breusch-Pagan and White test, there is an inter-individual heteroscedasticity problem that shows p-values less than 0.05 (pv=0.00<0.05) on both tests. As determined by the Wooldridge test, there is an autocorrelation problem with a p-value less than 0.05 (pv=0.00<0.05). Thus, OLS regression is not an efficient method for estimating the research model, whereas GLS panel regression is more appropriate and efficient.

To address the issues of heteroscedasticity and autocorrelation, the study utilizes Generalized Least Square (GLS) panel regression with clustered-robust standard errors, drawing on the methodology proposed by Arellano (1987). Additionally, the study aims to provide a comprehensive empirical analysis, focusing on a scenario with a large number of cross-sectional units (N) and a small number of periods (T), as outlined by Bai et al. (2020). Using clustered-robust standard errors necessitates conducting the

241 over-identifying restrictions test and the robust Hausman test to determine the most appropriate between fixed and random-effect models. The results of both tests indicate significant P-values below 0.05 (pv=0.00<0.05), indicating statistical significance.

Consequently, the study concludes that the fixed-effect model with clustered-robust standard errors is the most suitable approach for the present investigation, providing robust and reliable results.

Table 4 shows the results of a panel regression analysis of the impact of Covid-19 infection on firm market value. All Covid-19 infection measures show a negative coefficient that is significant at the 1% level, including fatality rate (FR), mortality rate (MR), and Covid active rate (CovR). A second independent variable, the cash holding ratio, has a positive coefficient with significance at the 1% level. Among the control variables, Size, ROA, and GDP are significant and positive, while Lev is significant and negative in all models.

Table 4.

Regression Analyzes of the Covid-19 Pandemic and Firm Market Value.

The results show that Covid-19 infection has a negative impact on the firm's market value, and therefore, H1 has not been rejected. The R-square varies between 12.99%

MV

Variable Predicted Sign (1) (2) (3)

Fatality Rate Mortality Rate Active Rate

Covid-19 - -5.477 ***

(-11.04)

-2.800 ***

(-8.69)

-0.385***

(-11.67)

CHR + 0.504 ***

(2.70)

0.540 ***

(2.87)

0.484***

(2.60)

Size + 0.488 ***

(5.91)

0.474 ***

(5.87)

0.485***

(5.87)

Lev - -0.189 **

(-1.98)

-0.183 * (-1.90)

-0.192**

(-2.01)

ROA + 1.185 ***

(4.81)

1.239 ***

(4.95)

1.192***

(4.85)

GDPG + 0.144 ***

(6.98)

0.156 ***

(7.49)

0.099***

(5.41)

Constant + 14.226 ***

(6.06)

14.510 ***

(6.30)

14.201***

(6.03)

N 6,909 6,909 6,909

R-Squared 0.1459 0.1299 0.1527

F 33.18 *** 27.44 *** 35.21 ***

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and 15.27% among all three models. Regression model (1) shows that FATALITY RATE has a negative correlation (-5.477) and is highly significant (t-stat =-11.04), indicating that Indonesian listed firms have lower firm values when fatality rates are higher. When the interest-independent variable is substituted with the other two alternative measures, such as MORTALITY RATE and Covid-19 ACTIVE RATE, it provides a consistent result in regression models (2) and (3). The severity of the Covid- 19 infection has adverse effects on economic activities, negatively affecting firm value.

The results support H1 in that the severity of a Covid-19 infection negatively impacts a firm's value.

The results of this research are consistent with those reported by Bose et al. (2021), which demonstrate that Covid-19 has a negative impact on the value of firms in countries with high Coronavirus cases. The distinctness between this research and Bose et al. (2021) can be attributed to the dataset used by the two studies. Bose et al. (2021) investigated the Covid-19 impacts on firm market value based on a quarterly dataset for one year that included both prior and during the first year of the Covid-19 occurrence in developed economies where infection and death rates are high. This study investigates the effects of Covid-19 on firm market value using quarterly data spanning three years, specifically focusing on the severity of Covid-19 in Indonesia as indicated by fatality rate, mortality rate, and active rate. The findings suggest that the severity of the virus in Indonesia has introduced financial uncertainty, rendering it challenging for firms to plan and make accurate forecasts effectively. The ambiguity surrounding future revenues, expenses, and cash flows has the potential to significantly impact investor confidence, consequently leading to a decline in market value.

Moreover, companies encountering liquidity issues or being burdened by high debt levels may be particularly susceptible to negative market sentiment. While the negative repercussions of Covid-19 on firm market value are expected to persist in the short term, the long-term prospects appear more favorable as the global economy gradually recovers from the pandemic. Furthermore, the crisis has accelerated the pace of digital transformation and innovation across various industries, opening up new opportunities for firms to explore.

243 This study's findings support Hypothesis 2 (H2), as indicated by all three models' positive and significant coefficients of the Cash Holding Ratio (CHR). The results reveal that several listed companies in Indonesia exercise discretion in corporate cash holding to mitigate the adverse consequences of the Covid-19 outbreak. The study demonstrates that reverse cash holding by firms effectively alleviates the detrimental effects of the pandemic, aligning with the findings of M. Zheng (2021), which acknowledge that cash holding has the ability to attenuate negative outcomes within the aggregate market. These findings emphasize the importance of strategic cash management and the utilization of cash reserves to mitigate the adverse impacts of crises such as Covid-19. During the pandemic, cash reserves play a crucial role as a financial buffer for companies, enabling them to effectively navigate the uncertainties of the economic landscape and fulfill their financial obligations, even in the face of reduced revenue or temporary operational shutdowns. Adequate cash holdings provide stability and greatly enhance a firm's ability to survive and continue functioning during these challenging times.

Moreover, cash reserves act as a protective cushion, safeguarding companies against unexpected shocks and financial risks that may arise. Firms with higher levels of cash on hand are better equipped to handle disruptions in their supply chains, adapt to changes in customer demand, and address unforeseen expenses stemming from the pandemic. By having cash readily available, businesses can effectively mitigate financial risks and minimize their reliance on external funding sources, which may become scarce or more expensive during times of crisis. Cash reserves serve as a vital lifeline for companies, offering them the necessary stability and flexibility to navigate the turbulent conditions and uncertainties brought about by the pandemic.

The study examined various control variables across all models in a comprehensive analysis. The findings indicate a significant positive relationship between the three control variables, namely Size, Return on Assets (ROA), and Gross Domestic Product (GDP), as evidenced by the statistical significance of the p-values (Pv=0.00<0.05).

These results highlight that larger firms with higher profitability and operating within a growing Indonesian economy tend to possess higher market values. On the other hand,

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the control variable Lev (leverage) exhibits a significant negative relationship with firm value, indicating that firms with higher levels of debt and leverage tend to have lower market values. This finding underscores the impact of leverage on firm valuation, emphasizing that firms with lower debt burdens may be perceived more favorably by investors, leading to higher market values. Overall, the study highlights the significance of firm size, profitability, economic growth, and leverage in determining the market value of firms.

5. Conclusion, Implication, and Limitations

This research examines the impact of the Covid-19 infections on firm market value.

Because analyzing data from 689 listed companies in Indonesia from March 2020 to the third quarter of 2022, the study shows that Indonesia's listed companies have suffered a significant decline in their market values because of the Covid-19 pandemic. Covid-19 appears to have a profound negative impact on firm market value among listed companies in Indonesia. The research revealed that Indonesian-listed companies could hold significant amounts of cash as a buffer against the negative effects of Covid-19.

The research findings suggest that firms should consider maintaining adequate cash reserves to mitigate the negative effects of crises like Covid-19 on their market value.

This implies that firms must carefully manage their financial resources and liquidity positions to enhance their resilience during economic uncertainty. Practitioners can use this information to develop strategies for cash management and financial risk mitigation. The present study consists of both empirical and theoretical contributions.

Empirically, the study sheds light on the impact of Covid-19 on firm market value and the role of cash reserves in mitigating market value deterioration amidst the pandemic.

This empirical evidence adds to the existing literature on the influence of crises on firm market value, providing insights into the specific effects of Covid-19. The research also makes theoretical contributions by contributing to the ongoing signaling theory debate.

It highlights how the severity of Covid-19 infections can serve as a signal for firms to preserve their market value. Additionally, the study touches upon the event system theory, providing insights into how the occurrence of Covid-19 infections affects firms

245 and their market value. By integrating these theoretical perspectives into the analysis, the research expands the understanding of the complex relationship between the pandemic, firm market value, and relevant theories in the field.

One significant limitation is the inability to capture the complete impact of Covid- 19 outbreaks due to data collection and analysis constraints at a specific time. Another limitation stems from the study's focus on listed firms in Indonesia, which limits the generalizability of the findings to other contexts. Additionally, the research provides preliminary empirical results and theoretical perspectives, thereby calling for further investigation. Future research endeavors could incorporate more extensive and longitudinal data to examine the influence of Covid-19, comparing periods before and after the pandemic to gain a more comprehensive understanding of its effects. By addressing these limitations and expanding the scope of analysis, future studies can enhance our knowledge of the pandemic's implications on firm market value and contribute to a more nuanced understanding of the topic.

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