Labor-Replacing Automation and Finance

Xin Cheng (), Evgeny Lyandres (), Kaiguo Zhou () and Tong Zhou ()
Additional contact information
Xin Cheng: School of Public Administration, Zhongnan University of Economics and Law, Wuhan 430070, China
Evgeny Lyandres: Coller School of Management, Tel Aviv University, Ramat Aviv 6997801, Israel; and Monash Business School, Monash University, Caulfield East, Victoria 3145, Australia
Kaiguo Zhou: School of Finance, Capital University of Economics and Business, Beijing 100070, China
Tong Zhou: College of Business, Southern University of Science and Technology, Shenzhen 518055, China

Management Science, 2025, vol. 71, issue 8, 6997-7028

Abstract: We examine the effects of adoption of labor-replacing automation technology on corporate financing. Empirically, using Chinese firm-level panel data on deployment of industrial robots as an example of such automation, we find that robot adoption increases leverage and reduces cost of debt. We hypothesize that the underlying reason is that being a substitute for labor, automation provides a hedge against fluctuations in labor costs. A model based on this hedging argument delivers additional testable predictions concerning determinants of the relation between automation and corporate financing. These relations are borne out in the data, providing support for the proposed mechanism. Our evidence is inconsistent with alternative channels behind the observed relations.

Keywords: automation; industrial robots; hedging; leverage; interest rates; labor costs (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2022.02658 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:8:p:6997-7028

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().