The Effect of Information Communication Technology and Cash Conversion Cycle on Firm Performance

Napaporn Nilapornkul

Abstract


This research has attempted to examine the impact of information communication technology (ICT) and cash conversion cycle (CCC) on a firm’s profitability. The major distinction of this study with the prior research is to compare the influence of ICT and CCC across industry in Thailand. The dependent variable was firms’ profitability, which employed return on assets (ROA).     Two key explanatory variables were ICT and CCC. The ICT quite stimulates market demand. While CCC is used for liquidity management, which measures the time lag between cash inflows from sales and cash outflows from goods purchase. Firms’ size also was included in the study as control variable. The research scope focused on listed companies in the Stock exchange of Thailand (SET) for 6 sectors, consisting of automotive (AU), materials & machinery (MM), petrochemicals & chemicals (PC), commerce (CO), health care service (HC) and transportation & logistics (TL) within 2 industry groups: industry and service. Data were collected in annual basis during 2014 – 2017. Panel regression models were employed for data analysis. The major findings revealed that firms in transportation & logistics had the shortest cash conversion cycle (CCC); while, materials & machinery sector had the longest of CCC. The information communication technology (ICT) has increased dramatically, especially during 2016 – 2017. The results found a significant negative relationship between ICT and ROA at statistically significant 1% level for automotive sector. Interestingly, the results showed that all factors: ICT, CCC and firms’ size provided significant impact on firm performance for health care sector. The cash conversion cycle and firm size had a negative relation to ROA of health care sector at statistically significant 1% level. Additionally, ICT had a positive relation to ROA of health care sector at statistically significant 1% level. Among three industry groups, the AU model provided the highest of R2 of 0.83. The HC model provided the highest of R2 of 0.97 for service sector.

 

Keywords: cash conversion cycle; profitability; firms’ size


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References


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