Industrial Robots and Finance
81 Pages Posted: 3 Dec 2020 Last revised: 6 Sep 2022
Date Written: August 29, 2022
We examine empirically and theoretically the effects of industrial robot adoption on corporate financing. Empirically, using firm-level panel data on robot deployment in China, staggered across both provinces and industries, we find that robot adoption reduces the cost of debt and increases leverage. We hypothesize that the underlying reason is that being a substitute for labor, robots provide a hedge against fluctuations in labor costs. A model based on this hedging argument delivers additional testable predictions concerning determinants of the relation between robot adoption and corporate financing, which are borne out in the data, providing support for the proposed mechanism. Our evidence is inconsistent with alternative channels behind the observed relations.
Keywords: Industrial robots, hedging mechanism, leverage, interest rates, labor cost uncertainty
JEL Classification: D24, E24, G32, O33
Suggested Citation: Suggested Citation