Workplace Automation and Corporate Financial Policy

70 Pages Posted: 31 Mar 2020 Last revised: 8 Feb 2021

See all articles by Thomas W. Bates

Thomas W. Bates

Arizona State University - Department of Finance

Fangfang Du

California State University, Fullerton

Jessie Jiaxu Wang

Arizona State University (ASU) - W.P. Carey School of Business; Board of Governors of the Federal Reserve System

Date Written: March 6, 2020

Abstract

We show that firms’ ability to substitute automated capital for labor provides an option to reduce labor-induced operating leverage, allowing for less conservative financial policies. Using an occupational measure of labor’s susceptibility to automation, we find that firms with a more substitutable workforce hold less cash, use more financial leverage, and pay higher dividends. We provide causal evidence by exploiting the 2011–2012 Thailand hard drive crisis as a shock to the cost of automation. Following adverse shocks to cash flow from state tax increases, firms with a more substitutable workforce replace labor with automated capital and increase financial leverage.

Keywords: Labor and finance; Corporate financial policy; Substitutability of labor with automated capital; Operating leverage; Artificial intelligence; Automation

JEL Classification: G31, G32, J23, O33

Suggested Citation

Bates, Thomas W. and Du, Fangfang and Wang, Jessie Jiaxu, Workplace Automation and Corporate Financial Policy (March 6, 2020). Available at SSRN: https://ssrn.com/abstract=3556935 or http://dx.doi.org/10.2139/ssrn.3556935

Thomas W. Bates

Arizona State University - Department of Finance ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Fangfang Du

California State University, Fullerton ( email )

800 N State College St
Fullerton, CA 92831
United States

Jessie Jiaxu Wang (Contact Author)

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://www.jiaxuwang.com

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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