Artificial Intelligence Makes Firm Operating Performance Less Volatile

Tania Babina, Anastassia Fedyk, Alex He and James Hodson

AEA Papers and Proceedings, 2025, vol. 115, 35-39

Abstract: How does artificial intelligence (AI) affect the volatility of firms' operational performance? We leverage detailed employer-employee data to link firm-level AI investments to the volatility of firm sales, earnings, and cash flows. Our results indicate that firms that invest more in AI experience reductions in the volatility of all three measures of operational performance compared to firms with lower AI investments. This finding highlights how adoption of technologies such as AI can benefit firms not only by increasing the first moment of their operational performance (e.g., raising sales) but also by reducing the second moment (lowering volatility).

JEL-codes: C45 G31 J23 J24 L25 M15 M51 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/pandp.20251002

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