Workplace Automation and Corporate Financial Policy
67 Pages Posted: 31 Mar 2020 Last revised: 16 Jun 2020
Date Written: March 6, 2020
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: Suggested Citation