THE IMPACT OF BOARD DIVERSITY AND THE MODERATION EFFECT OF COVID-19 PANDEMIC ON FREE CASH FLOW

In this study, we propose pandemic Covid-19 as moderating effect on the role of board diversity in enhancing the allocation of free cash flow. The board diversity variables are examined using least squares regression for panel data by exploiting the variables to board gender diversity, board member affiliation, board specific skills, and board size variables for an observation of 279 Indonesian listed firms over the period 2015–2021. We found that the presence of female gender on the board, the presence of board members who have either an industry specific background or a strong financial background, and enough board members deter the opportunistic conduct of managers and likely to reduce excess funds through dividend pay-outs. The results demonstrate that a diverse board reduces agency conflicts and enhances resource allocation supporting governance practices. During the Covid-19 pandemic, the presence of female gender in the board, the presence of boards member with other corporate affiliations, and the adequacy of board size proved to provide more effective supervision of the company's cash flow allocation. The findings are beneficial to policymakers since this explains the significance of implementing measures to enhance the efficacy of the board's role by instituting a diversity requirement.


INTRODUCTION
The Covid-19 pandemic has resulted in a worldwide catastrophe that has reduced the amount of economic activity that is taking place across the world.Because of this unusual shock, businesses have had a negative impact on their corporate revenues, and the volatility in their cash flow have been exacerbated (1).Those extraordinary conditions force managers to do proper allocation of free cash flow.Free cash flow is the remaining cash flow after every project with a positive Net Present Value have been funded (2) company is not investing in its business or allocating it well.
In situations where there is surplus corporate cash, managers are incentivised to enhance their authority over company assets by directing investments towards endeavours that yield personal benefits (3) .The utilisation of debt as a disciplinary mechanism to deter managers from making opportunistic use of available cash may lead to a situation where managers with self-interest who prioritise their personal objectives, may exhibit a preference for a lower level of debt than what is deemed optimal (4).Despite limited investment opportunities, managers are incentivised to reinvest free cash flow rather than pay dividends (5).On the other hand, shareholder and board can encourage management to do equity policy by allocating free cash flow to pay dividends.
Unquestionably, the board is an integral part of any organisation's governance structure due to the significance of its functions in overseeing and regulating management practices to avert inadequate allocation of resources by management (6).Performance of the board can play an essential part in preventing agency conflicts (7).If the board does not understand their role, the monitoring function will be ineffective.
A study on emerging economies, observed that businesses in developing nations tend to operate within societies where male leadership predominates and exhibit suboptimal resource utilisation (2).Board gender diversity can affect the effectiveness of decision making (7).However, the Indonesian Financial Services Authority observes that the average representation of women on the boards of Indonesian publicly traded companies remains below 50% (8).In addition, the past literature provides no consensus regarding the effect of board size on an organisation's performance, since it examines the positive and negative effects of larger boards leading to righteous decisionmaking (9).
Previous research focusing on the impact of Covid-19 on company performance shows that the Covid-19 pandemic has a negative impact on company performance (10).
Furthermore, the pandemic has highlighted the significance of a firm's sustainability performance as one of the primary determinants of its resilience to unexpected disruptions (11).Policy restrictions on activities that occur throughout the world are detrimental to business performance (12).

METHOD Data and Source
This study is conducted using quantitative statistical methods.We obtained 59 firms with comprehensive data and 279 samples.

Variables definitions and measurements
The dependent variable in this study is the level of free cash flow (FCF).Free cash flow is measured by multiplying cash flow by the inverse of Tobin's Q (2).Tobin's Q is a ratio measurement tool that defines the value of the company.Tobin's Q also describe the effectiveness and efficiency of the company in utilising all its asset resources.The greater the cash flow and the lower the Tobin's Q, the greater the risk of free cash flow.Tobin's Q is considered a measure of growth opportunity that allows for the identification of free cash flow risks that need to be anticipated.We also develop empirical model using Covid-19 pandemic as moderating effect as follows.

Regression results
In this study, the panel data regression model  3.

Discussion
The presence of female gender on the board is proven to reduce the excess funds available to managers.Companies with high free cash flow and low growth opportunities tend to encourage managers to conduct earning management (20).This conforms to the agency theory framework that supports the advantages of female representation on boards.Diversity of gender reduces conflicts of interest between managers and shareholders, therefore this considered as a useful corporate governance instrument in relation to board composition (21).
Board diversity increases board independence, which enables the board to make more effective decisions, including allocation decisions of free cash flow (22).
Gender diversity enables supervisory actions that better align the interests of managers and shareholders, thereby reducing agency costs (23).The results of this study are also consistent with the predictions of resource dependence theory, which states that the presence of female members on the board can be a resource that can be used to enhance management supervision and control (24).
Board Members with strong specific skills or expertise in the financial sector are proven to reduce free cash flow.Board members with a specific industry background is defined as Business Expert (16) Good governance is essential and plays a crucial role on post-pandemic recovery and formation of a new normal(13).The novelty of this study are we look further at the influence of diversity by expanding the variables including board specific skills, board member affiliation, and board size and we also consider the moderating effect of Covid-19 pandemic on the relationship between the board diversity on free cash flow which not been evaluated before.The objective of this study is to examine interrelated topics about first, the impact of boards diversity on the level of free cash flow and second, the moderating effect of Covid-19 pandemic on the relationship of boards diversity and free cash flow.The contributions of this study are listed below.the role of board diversity where previous research does not evaluate in extraordinary situations.b.Board diversity is exploited by expanding the variables to board gender, board member affiliation, board specific skills, board size as independent variables, which enriches previous literature.c.The results of this study can provide policymakers with significant insights regarding the significance of board diversity in preventing the inappropriate allocation of funds, thereby facilitating the integration of diversity in hierarchical structures.
is determined using model testing with the Chow Test and the Hausman Test.Given that the Prob > F value is zero based on the Chow Test, the selected model is the Fixed-Effect Model.In addition, based on the Hausman test, the Prob> chi2 value and p-value of the research model are less than 5%, so the Fixed-Effect Model has been chosen.Since the Fixed-Effect Model selected in the Chow Test and Hausman Test, the LaGrange Multiplier test is no longer necessary.The outcomes of the least squares (LS) regression are provided in Table particularly the DW stat value, the research model may have a problem with the relationship between values that are separated by a certain time gap.To solve this issue, an independent variable with a one-year lag period in relation to the dependent variable is added (FCF_1).Third, we also performed robust regression, which is a regression technique used when the distribution of residuals is not normal or when there are multiple outliers affecting the model.Model Robustness Test is essential for analysing data affected by outliers to produce a model that is robust or resistant to outliers.Robust regression uses the M-Estimator for FCF_COV empirical research model with the dependent variable free cash flow and the moderating effect of the Covid-19 Pandemic as follow.

CONCLUSION
crucial factors to consider because they support the function of the board in conducting its supervisory and advisory responsibilities toward management.The results of this study support H1 and H2 that board diversity supports the existence of a strong governance mechanism that reduces the agency costs of cash flow duties and enhances the alignment of shareholders' and managementIn the context of corporate governance, firm in emerging markets are typically associated with societies that use resources less efficiently.This study is motivated by these issues to help us comprehend how board diversity impacts corporate decision-making by examining the relationship between board diversity and the moderating effect of Covid-19 pandemic on free cash flow.The results of this study found that there is still a lack of representation of women on the board, even though this is proven to improve corporate governance.For this reason, in policy making, regulators need to encourage the representation of women on the board.In addition, regulators should also encourage prospective board members to have a strong industry or financial background and ensure that there are sufficient board members to apply effective oversight all the company's business activities.Recommendation for future research that it is necessary to analyse deeply the reasons for allocating the level of firm free cash flow considering the business life cycle of the company.These become a limitation of this study which needs further investigation.This research is beneficial for the company's policymakers because it allows them to evaluate the significance of board diversity in monitoring managers' responsibilities, particularly regarding the allocation of excess funds.In addition, this finding has implications for regulators as it explains the significance of implementing measures and reforms to enhance the efficacy of the board's role by instituting a diversity requirement.With health-related crises such as the Covid-19 pandemic, board diversity can enhance the effect on free cash flow.Therefore, this can be utilised as a shareholder strategy to enhance corporate governance when extraordinary circumstances arise.

Table 2 : Descriptive Statistic
H2d: The Covid-19 pandemic has a moderating effect on the relationship between board size and the level of free cash flow.

Table 3 : Regression result with LS method.
Gender, Board Member Affiliation, and Board Size and the company's level of free cash flow.