Exploring the Paradox: How Cigarette Excise Tax Affects Firm Value with Firm Size and Profitability as Key Moderators

Purpose: This study aims to explore the impact of cigarette excise tax on the value of tobacco companies in Indonesia, focusing on how firm size moderates this relationship. Design/methodology/approach: Employing descriptive statistical analysis and Moderating Regression Analysis (MRA) using process software, this research analyzes panel data from quarterly financial statements of four companies listed on the Indonesia Stock Exchange over the period 2016-2023. Findings: The study finds that cigarette excise tax has a significant negative effect on firm value, indicating that higher tax policies can adversely affect the financial performance of firms reliant on excise-taxed products. Additionally, firm size plays a moderating role, with larger firms demonstrating a greater capacity to absorb the negative impacts of excise taxes, while smaller firms are more vulnerable. Profitability (ROA), however, does not moderate the relationship between excise tax and firm value. Practical implications: The findings highlight the importance of considering firm size when evaluating the financial implications of excise tax policies. Policymakers can use these insights to anticipate the challenges faced by smaller firms and identify strategies to mitigate the adverse effects of higher taxes. Business leaders in the tobacco sector can also leverage this information to better understand their firm's resilience to regulatory changes. Originality value: This study contributes to the literature by showing that firm size is a critical factor in moderating the negative impact of excise taxes on firm value, offering a new perspective on the dynamics between regulatory policy and firm performance in the tobacco industry or as a paradox of tax impact and firm sustainability.