Market Reaction to the Implementation of Coal Royalty Tariff Policy in Indonesia
Abstract
The impact of government regulation on the mining industry is captivating to explore, specifically the newly reformed Coal Royalty Tariff. This present research captures the market's response to two tariff policy reforms, namely the Indonesian Government Regulation Number 25 of 2021 and Government Regulation Number 15 of 2022 building upon the semi-strong form market efficiency. T-Test analysis is used to test the hypothesis in which the abnormal returns from sample companies in the mining sector on the Indonesia Stock Exchange surround the enactment of government regulations. There is no abnormal return that occurred around the enactment of Government Regulation Number 25 of 2021, while the enactment of Government Regulation Number 15 of 2022 do generate abnormal return. Results imply a solid relationship between changes in risk and the investors’ expected future profitability as investors’ expectations are depicted in the stock price movements. This concludes that uncertainty following changes in government regulation constitutes an additional premium required by the investors. Our findings provide empirical evidence to the literature of semi-strong form market efficiency hypothesis (EMH) displaying that the market response to the implementation of changes in policies, especially the government should give proper attention to the issue of determining tariffs and investors should evaluate their required premium based on the impact of tariff changes.
Keywords: Stock Price, Coal Mining, Government Policies, Royalty Rate
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References
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Schwert, G. W., Bums, M., Charest, G., Ferguson, J., Holthausen, R., Jarrell, G., Masulis, R., Mayers, D., Peltzman, S., Ruback, R., Smith, C., Warner, J., Watts, R., Zimmerman, J., Stigler, G. J., Posner, R. A., Peltzman, S., Muth, S. J. F., Expectations, R., … Fama, E. F. (1981). Using Financial Data To Measure Effects Of Regulation. 315(1961), 121–158.
Sunley, E. M., & Baunsgaard, T. (2001). The Tax Treatment of the Mining Sector: An IMF Perspective. International Monetary Fund, 1–15.
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Afonso, A., & Sousa, R. M. (2011). What are the effects of fiscal policy on asset markets? Economic Modelling, 28(4), 1871–1890. https://doi.org/10.1016/j.econmod.2011.03.018
Altin, H. (2015). Efficient Market Hypothesis, Abnormal Return and Election Periods. European Scientific Journal, 11(34), 169–178.
Anand, M., & Singh, J. (2018). Impact of Automobile Regulations on Shareholders’ Wealth: Indian Empirical Evidence. Metamorphosis: A Journal of Management Research, 17(1), 28–40. https://doi.org/10.1177/0972622518770833
Ball, R., & Brown, P. (1968). An Empirical of Accounting Income Numbers. Journal of Accounting Research, 6(2), 159–178. http://www.journals.uchicago.edu/t-an
Basdas, U., & Oran, A. (2014). Event studies in Turkey. Borsa Istanbul Review, 14(3), 167–188. https://doi.org/10.1016/j.bir.2014.03.003
Bernanke, B. S., & Kuttner, K. N. (2005). What explains the stock market’s reaction to federal reserve policy? Journal of Finance, 60(3), 1221–1257. https://doi.org/10.1111/j.1540-6261.2005.00760.x
Binder, J. J. (1985). Measuring the Effects of Regulation with Stock Price Data. The RAND Journal of Economics, 16(2), 167. https://doi.org/10.2307/2555408
Bird, R., Grosse, M., & Yeung, D. (2013). The market response to exploration, resource and reserve announcements by mining companies: Australian data. Australian Journal of Management, 38(2), 311–331. https://doi.org/10.1177/0312896212473401
Blanchard, O. J. (1981). Output, the Stock Market, and Interest Rates. The American Economy Review, 71(1), 132–143.
Boutchkova, M., Doshi, H., Durnev, A., & Molchanov, A. (2011). Precarious politics and return volatility. Review of Financial Studies, 25(4), 1111–1154. https://doi.org/10.1093/rfs/hhr100
Brown, S. J., & Warner, J. B. (1985). Using daily stock returns. The case of event studies. Journal of Financial Economics, 14(1), 3–31. https://doi.org/10.1016/0304-405X(85)90042-X
Cable, J., Henley, A., & Holland, K. (2005). Event Study of the Auctions of 3G Mobile Telephone Licences in the. Fiscal Studies, 23(4), 447–462.
Castillo, E. (2021). The impacts of profit-based royalties on early-stage mineral exploration. Resources Policy, 73. https://doi.org/10.1016/J.RESOURPOL.2021.102231
Chen, X. (2021). The Impact of Monetary and Fiscal Policy Shocks on Stock Markets: Evidence from China. Emerging Markets Finance and Trade, 54(8), 1857–1872. https://doi.org/10.1080/1540496X.2018.1425610
Crowley, M. A., Meng, N., & Song, H. (2019). Policy shocks and stock market returns: Evidence from Chinese solar panels. Journal of the Japanese and International Economies, 51(October 2018), 148–169. https://doi.org/10.1016/j.jjie.2019.02.006
Daniel, P., Keen, M., & McPherson, C. (2010). Petroleum fiscal regimes: Evolution and challenges. In The Taxation of Petroleum and Minerals: Principles, Problems and Practice. https://doi.org/10.4324/9780203851081-13
Darrat, A. F. (1988). On Fiscal Policy and the Stock Market. Journal of Money, Credit and Banking, 20(3), 353. https://doi.org/10.2307/1992261
Dimson, E., & Marsh, P. (1986). Event study methodologies and the size effect. The case of UK press recommendations. Journal of Financial Economics, 17(1), 113–142. https://doi.org/10.1016/0304-405X(86)90008-5
Fama, E. F. (1970). Stock market price behavior. The Journal of Finance, 25(2), 383–417.
Fama, E. F., Fisher, L., Jensen, M. C., & Roll, R. (1969). {http://www.jstor.org/stable/2525569The} Adjustment of Stock Prices to New Information. International Economic Review, 10(1), hlm: 1-21.
Fraser, R. W. (1985). Commodity taxes under uncertainty. Journal of Public Economics, 28(1), 127–134. https://doi.org/10.1016/0047-2727(85)90024-6
Fulwood, M., & Fattouh, B. (2019). Energy Transition Uncertainty and-the Implications of Change in the Risk Preferences of Fossil Fuel Investors Insight. Oxford Institute for Energy Studies, January, 1–13.
Hachenberg, B., Kiesel, F., Kolaric, S., & Schiereck, D. (2017). The impact of expected regulatory changes: The case of banks following the 2016 U.S. election. Finance Research Letters, 22, 268–273. https://doi.org/10.1016/j.frl.2016.12.021
Indonesia Financial Reports. (2020). Indonesia Financial Reports.
Jensen, M. C. (1968). Predictive Ability-That. The Journal of Finance, 23(2), 389–416.
MacKinlay, A. C. (1997). 0 MacKinlay-1996-Event-Studies-in-Economics-and-Finance.pdf. In Journal ofEconomic Literature, (Vol. 35, Issue 1, pp. 13–39).
Ministry of Energy and Mineral Resources of Indonesia. (2022). Keputusan Menteri Energi dan Sumber Daya Mineral Nomor 18.K/HK.02/MEM.B/2022. https://jdih.esdm.go.id/index.php/web/result/2224/detail
Otto, J., Andrews, C., Cawood, F., Doggett, M., Guj, P., Stermole, F., Stermole, J., & Tilton, J. (2006). A Global Study of Their Impact on Investors, Government, and Civil Society. In Tehnika (Vol. 69, Issue 3). https://doi.org/10.5937/tehnika1403416j
Pastor, L., & Pietro, V. (2010). Uncertainty About Government Policy And Stock Prices. Paper Knowledge . Toward a Media History of Documents, 7(2), 107–115.
Purnasari, L. H., Siregar, H., & Maulana, T. N. A. (2015). Impacts of Indonesia raw minerals export ban on abnormal return and trading volume: An event study on stocks of metals and minerals mining subsector …. Asian Journal of Business and Management, 03(06), 460–469.
Ragimun, & Rosjadi, I. (2020). Fiscal incentive policy for coal downstreaming in Indonesia. IOP Conference Series: Materials Science and Engineering, 909(1). https://doi.org/10.1088/1757-899X/909/1/012055
Schwert, G. W., Bums, M., Charest, G., Ferguson, J., Holthausen, R., Jarrell, G., Masulis, R., Mayers, D., Peltzman, S., Ruback, R., Smith, C., Warner, J., Watts, R., Zimmerman, J., Stigler, G. J., Posner, R. A., Peltzman, S., Muth, S. J. F., Expectations, R., … Fama, E. F. (1981). Using Financial Data To Measure Effects Of Regulation. 315(1961), 121–158.
Sunley, E. M., & Baunsgaard, T. (2001). The Tax Treatment of the Mining Sector: An IMF Perspective. International Monetary Fund, 1–15.
Titan, A. G. (2015). The Efficient Market Hypothesis: Review of Specialized Literature and Empirical Research. Procedia Economics and Finance, 32(15), 442–449. https://doi.org/10.1016/s2212-5671(15)01416-1
Tobin, J. (1969). Equilibrium Approach To Monetary Theory. Journal of Money, Credit and Banking, 1(1), 15–29.
Veronesi, P., & Zingales, L. (2010). Paulson’s gift. Journal of Financial Economics, 97(3), 339–368. https://doi.org/10.1016/j.jfineco.2010.03.011
Xiao, X., & Gao, Y. (2016). An event study of the effects of regulatory changes on the food industry The case of the Food Safety Law of China. China Agricultural Economic Review, 9(1), 81–92. https://doi.org/10.1108/CAER-01-2014-0006
Published
2023-09-30
How to Cite
ANGGARA, I Wayan Gde Wahyu Purna; ANDARI, Ni Made Puji.
Market Reaction to the Implementation of Coal Royalty Tariff Policy in Indonesia.
E-Jurnal Akuntansi, [S.l.], v. 33, n. 9, p. 2380-2393, sep. 2023.
ISSN 2302-8556.
Available at: <https://ojs.unud.ac.id/index.php/akuntansi/article/view/87742>. Date accessed: 09 may 2024.
doi: https://doi.org/10.24843/EJA.2023.v33.i09.p10.
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