Workplace Automation and Corporate Financial Policy

67 Pages Posted: 31 Mar 2020 Last revised: 16 Jun 2020

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

Date Written: March 6, 2020

Abstract

We document that a firm’s ability to substitute automated capital for labor is an important determinant of corporate financial policy. Using a novel occupational measure for labor’s susceptibility to automation, we show that firms with a more substitutable workforce hold less cash, use more financial leverage, and pay higher dividends. Following adverse shocks to operating cash flow, firms with a more substitutable workforce are more likely to replace labor with automated capital and increase financial leverage. Taken together, the potential for workplace automation gives firms the option to reduce labor-induced operating leverage, allowing them to adopt less conservative financial policies.

Keywords: Labor and finance; Cash holdings; 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

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