Impact of Firm Size on Profitability: Evidence from India’s Top IT Companies (2020–2025)

Abstract

This study investigates the impact of firm size on profitability for the top five IT BSE listed companies (TCS, Infosys, HCL Technologies, Wipro, Tech Mahindra) from 2020-2021 to 2024-2025. Although the time span is relatively short, it sufficiently captures considerable volatility arising from post-pandemic digital acceleration, macroeconomic uncertainty, and fluctuations in global technology spending—conditions under which size-profitability dynamics are most visible. Firm size is represented by natural logarithm of total assets and total sales, while profitability is measured using net profit ratio (NP), return on assets (ROA), and asset turnover. To ensure statistical robustness and comparability, all continuous variables have been logarithmically transformed to mitigate heteroscedasticity and normalize the data distribution, improving estimation efficiency. The study employs panel data techniques, including correlation analysis, pooled OLS, fixed effects (FE), random effects (RE), and dynamic panel generalized method of moments (GMM), to test the relationship between firm size and profitability. Results reveal a nuanced association: larger firms often benefit from economies of scale, but excessive size can hinder agility and operational efficiency. Firm size—particularly total assets—shows a dominant yet complex influence on profitability, whereas asset turnover exhibits weaker, sometimes insignificant effects. Dynamic-panel estimates further reveal that past profitability significantly influences present performance, emphasizing the importance of long-term strategic consistency and offer critical insights for managers and policymakers aiming to navigate growth and sustain profitability in India’s dynamic IT industry. Overall, the findings demonstrate that scale provides operational strength, yet size alone does not ensure higher profit margins across all firms in the industry.