The Announcement of an Increase in Cigarette Excise Rates and Its Implication Towards Indonesia Capital Market

Abstract

Purpose of this research is to investigate the reaction of Indonesia capital market to the announcement of an increase in cigarette excise rates on September 13 th 2019. The cigarette sub sector companies that has been listed on the Indonesia Stock Exchange are used as sample. Event study is a research approach to investigate the reaction of the Indonesia capital market towards the announcement of increasing cigarette excise rates. In this study, market adjusted model was chosen to explain the expected return from the announcement of an increase in cigarette excise rates. Nine days of windows period were used which consist of four days before the announcement, announcement date, and four days after the announcement of the increase in cigarette excise rates. There were two proxies that have been aksed to explain capital market namely abnormal return, and trading volume activity. The finding of the result showed that the market reacted to the announcement which was found from the abnormal return at t-4 and t+3. On the other hand, there was no significant reaction towards the announcement proxied by trading volume activity.