THE IMPLICATIONS OF DIGITAL MATURITY ON FINANCIAL PERFORMANCE: EVIDENCE FROM INDONESIAN PUBLIC COMPANIES

• Main Author: Erlangga
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/64412
• Institution: Institut Teknologi Bandung

As digital technologies start to gain stronger position in our economic landscape, more companies are investing on digital technologies. However, investing on these technologies is not cheap whatsoever. Firms should sacrifice their funds to invest on digital tools in order to be digitally mature. Moreover, uncertainties loom as they invest on these technologies since they are considered as a novel phenomenon. Thus, this research aims to shed light on the issue by identifying the trends of digital maturity of Indonesian firms and the effects of the firm's digital maturity on its financial performance, in terms of profitability, sales growth, and stock performance measures. The study uses firms having their names always listed in KOMPAS100 Index between 2014 - 2018 period and have a text-based annual report as the sample firms, which consists of total 47 firms. This study also deploys a digital maturity measurement based on the annual disclosure of digital activity-related words in the annual reports of the firm, with a tercile-based quantification method to prevent noisy nature of the raw count, to find out the effect of digital maturity on financial performance. Panel data regressions are used to depict the effects of digital maturity on financial performance. The Fixed-Effect Model with Cross-Section Weight is deployed since the panel data regressions experience cross-section heteroscedasticity. The results suggest that the digital technology utilization of Indonesian firms has an increasing trend from 2014 - 2018, for all technology dimensions that are observed. The results also suggest that the highest growth of the digital technology utilization in the sample firm is related to data analytics and internet of things (IoT) technology. While in terms of industry, the industry which prevalently used digital technologies in 2014 - 2018 was the Infrastructure and Transportation. On the other hand, the result of the regression suggest that digital maturity has a positive significant effect on profitability proxies, namely Return on Assets (ROA) and Net Profit Margin (NPM). It also has a positive significant effect on annual stock return. However, the study finds mixed results on the effect of digital maturity on sales growth due to the absence of significance of digital maturity variable in the sales growth model.