Automation and the displacement of labor by capital: Asset pricing theory and empirical evidence

Jiri Knesl

Journal of Financial Economics, 2023, vol. 147, issue 2, 271-296

Abstract: I examine the asset pricing implications of technological innovations that allow capital to displace labor: automation. I develop a theory in which firms with displaceable labor are negatively exposed to such technology shocks. In the model, firms optimally adopt technology to gain competitive advantage but in equilibrium competition erodes profits and decreases firm value. Empirically, I find that firms with high share of displaceable labor have negative exposure to technology shocks. A long-short portfolio sorted on this variable mimics macroeconomic measures of technology shocks. Negatively exposed firms earn a 4% annual return premium consistent with displacement risk from technological progress.

Keywords: Automation; Technology shock; Technology adoption; Stock returns; Displacement; Risk premium (search for similar items in EconPapers)
JEL-codes: G10 G12 G30 G31 J24 O33 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:2:p:271-296

DOI: 10.1016/j.jfineco.2022.11.003

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