Automation Exposure and Investment Efficiency

Abstract

This paper investigates the effect of automation exposure on firms’ investment efficiency. Using a sample of U.S. public firms spanning the period 1980–2020, we document a negative effect of automation exposure on both investment–cash flow sensitivity and investment–price sensitivity. Our main finding remains robust after accounting for a range of potential endogeneity concerns. The negative effect on investment–cash flow sensitivity is more pronounced among firms with financial constraints, while the negative effect on investment–price sensitivity is stronger for firms with higher stock price informativeness and more managerial incentives to learn from the market. Overall, our study highlights to the important role of automation technologies in shaping corporate activities.

Keywords: Automation, Investment-cash flow sensitivity, Investment-price sensitivity, Financial Constraints, Price informativeness