IT Investment Intensity and Dynamic Profitability: Organisational and Operational Contingencies in Indian Manufacturing Firms

Abstract

Digital-investment intensity has become a common line item in manufacturing accounts, yet its link to accounting profitability is rarely tested against the organisational and operating conditions under which spending actually occurs. This study asked whether, and under what conditions, digital-investment intensity was associated with the dynamic profitability of Indian manufacturing firms, examining financial slack, workforce intensity, energy-cost intensity, and asset turnover as candidate moderators. Annual firm-level data for 2014–2024 came from the CMIE Prowess database; the sample, 28,304 observations across 4,049 firms, was analysed with two-step difference GMM (Windmeijer-corrected robust standard errors, collapsed instruments, a lag window of two to three periods), benchmarked against dynamic pooled OLS, dynamic fixed effects, and fixed effects with Driscoll–Kraay standard errors. Profitability proved positively persistent, and in the base model digital-investment intensity carried no statistically significant independent association with return on assets. Financial slack helped profitability directly but left the digital-investment relationship unmoderated. Workforce intensity cut the other way at each level: a negative direct association coexisted with a positive, significant interaction that made the conditional digital-investment association less severe without ever turning it positive across the range examined. Asset turnover showed the reverse pattern — a positive direct effect alongside a negative conditioning relationship. Energy-cost intensity registered no significant role of either kind. Read together, the results point toward a selective, context-dependent account of digital-investment benefit realisation in emerging-economy manufacturing rather than an automatic profitability premium, and every claim above should be read as associational rather than causal.