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This paper aims at assessing the impact of firm-specific and macroeconomic factors affecting the profitability through a scientific analysis of time-series data from selected 122 listed IT companies in India. The Capitaline Database was used to collect the necessary information for the study for the period from 2008-09 to 2016-17, and the information not available in the database was compiled from the financial reports available on the websites of the respective companies. A panel-data regression was conducted along with the Hausman test, which is the most commonly used procedure for estimating panel data effect. The random effect models revealed that almost six out of the eight firm-specific variables, i.e., firm size, age, age2, leverage, Growth of Sales (GoS), and employee-cost to sales were found to be significantly correlated with firm-profitability. However, growth of total assets and asset-tangibility had a non-significant relationship with profitability measures. As for the macro-economic variables, inflation was found to be significant only for return on sales, whereas GDP, bank lending rate, and index for industrial production were found to have non-significant relationships with all profitability measures. The paper concludes with a few practical implications of the afore-mentioned findings.
Key Words: Firm-specific variables, Indian IT Companies, Macro-economic variables, Profitability determinants
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1.INTRODUCTION
The information technology industry has been recognized for its indispensable contribution in the economic development of the country over the last three decades, whereby the contribution of the IT sector to India's GDP has improved to 7.9% in 2018 and expected to contribute 10% by 2025 (IBEF, February 2019). In 2017-18, India was the largest global sourcing destination, accounting for approximately 55% of the global sourcing business worth the US$185-190 bn (Meity, Annual Report 201819). Furthermore, India led the advantage with a contribution of 75% of all digital talent globally (NASSCOM, 2019). The Indian IT industry is a major hub for attracting investments from countries like the US, Europe, and other areas of the world. The IT industry has also been acknowledged as a knowledge-based industry that gets the benefit of an economy of scale, concentrating on newer markets, investing revenues, gaining domain expertise, attracting operational excellence, gaining the faith of its customers, and efficiently utilizing skilled labor to get better productivity, which further helps...