The ICT Paradox in Indonesia: ICT Investment and Firm Profitability

This study examines the ICT paradox using data from Indonesian firms. Specifically, it aims to investigate the impact of investing in ICT capital on the profitability of Indonesian firms. We use data from companies listed on the LQ45 index for the research sample, with a five-year observation from 2014 to 2018. Firm profitability is measured using ROA, while ICT capital is proxied using the ICT investment and intensity. Control variables included in this study are firm size, age, and leverage. We then employ a Cobb-Douglas process and fixed-effect panel data regression to analyze the data. Our findings suggest that ICT investment affects firms' performance positively. However, companies could not as well invest too much in ICT as we found that the square of ICT investment variable has a significant negative coefficient, indicating decreasing benefits of ICT investment after a certain amount. Furthermore, the relationship between ICT investment and performance was reinforced by the negative sign of the ICT intensity dummy variable. Based on this finding, we encourage firms to invest in ICT capital but be mindful not to over-invest as outstretching ICT investment could adversely affect profit.