THE IMPACT OF WORKING CAPITAL MANAGEMENT ON FIRM VALUE AND PROFITABILITY OF LISTED PROPERTY AND REAL ESTATE FIRMS IN INDONESIA DURING THE COVID-19 PANDEMIC

• Main Author: Yunus Mahendra, Rifaldi
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/66737
• Institution: Institut Teknologi Bandung

The Coronavirus disease 2019 (COVID-19) pandemic has affected domestic and international economic activities. It has pushed the Indonesian economy into a disaster. Most industries in Indonesia have been affected by the COVID-19 pandemic. The Indonesian property and real estate industry is considered one of the most affected by the COVID-19 pandemic. The demand for property and real estate has plummeted since the first COVID-19 outbreak in Indonesia. The point to consider during an economic crisis and one of the appropriate solutions to withstand the impacts of the economic crisis is to carry out efficient working capital management (WCM). Furthermore, the efficient WCM also contributes positively to the value creation and profitability of the firm. The purpose of this study is to empirically analyze and examine the impact of working capital management on firms’ value and profitability of listed property and real estate firms in Indonesia during the COVID-19 pandemic. This research uses 39 available firms’ financial historical data, which is collected from the property and real estate industry firms listed on Indonesia Stock Exchange (IDX). Firms’ historical financial data collected is quarterly over the period 2018Q3 – 2021Q3. The historical financial data are also retrieved from Stockbit. This research employs panel data regression and the two-step system Generalized Method of Moment (GMM) to deal with unobservable heterogeneity and endogeneity issues. The results show negative relationships between firms’ value and DIO as well as CCC while DPO positively affects firms’ value. It indicates that pursuing shorter DIO and CCC while relying on shorter-term financing through longer DPO leads to an increase in firms’ value. Furthermore, the dummy variable COVID_CRISIS is proven to have a strong negative significant influence on firms’ value. It implies that the more severe the economic crisis triggered by the COVID-19 pandemic, the lower the Indonesian property and real estate firms’ value. The findings also reveal that all working capital components have non-significant relationships with firm profitability proxied by ROA and ROE. On the contrary, empirical evidence shows a positive relationship between DSO and firms’ profitability proxied by GOP while the quadratic form of DSO (DSO2) has a significant negative relation with GOP. Furthermore, DIO also seems to have a negative association with firms’ profitability proxied by GOP. It implies loosening credit policy by granting customers more time to make payments. However, this positive effect does not last indefinitely since the credit policy that is too loose will attract financially constrained customers or even customers with liquidity problems, which in turn will decrease firms’ GOP. In addition, reducing the delay for inventories to be converted into cash will increase firms’ GOP. Empirical evidence indicates that the economic crisis triggered by the COVID-19 pandemic is proven to have a significant negative effect on the Indonesian property and real estate firms’ profitability proxied by ROE and GOP. This study provides important theoretical and practical implications for the industry. Theoretically, this research contributes by expanding the literature on working capital management by taking into account the economic crisis triggered by the COVID-19 pandemic. Practically, this research guides the actions of the Indonesian listed property and real estate firms’ policymakers regarding firms’ working capital management policy. The findings of this research suggest that the efficiency of firms’ working capital management should be given more attention by the firms’ policymakers to overcome the effects of the economic crisis due to the COVID-19 pandemic. For the purpose of future research, the scope of the research can be extended using different measures of firms’ value and profitability as dependent variables and different control variables in order to reduce potential bias that may arise due to omitted variables. In addition, it is better to understand how firms’ management manages their current assets and liabilities as well as where firms’ managers might highlight their policies for coping with challenges like the liquidity shortage that firms would encounter during the economic turbulence caused by the COVID-19 pandemic.