Workplace Automation and Corporate Liquidity Policy

Jessie Wang

No 2023-023, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using an occupational probability of computerization, we measure a firm’s ability to replace labor with automated capital. Our evidence suggests that the potential to automate a workforce enhances operating flexibility, allowing firms to hold less precautionary cash. To provide evidence for this mechanism, we exploit the 2011–2012 Thailand hard drive crisis as an exogenous shock to the cost of automation. In addition, the negative relation between prospective automation and cash holdings is greater for firms with a lower expected cost of worker displacement and greater labor-induced operating leverage.

Keywords: Automation; Operating flexibility; Corporate liquidity policy; Substitutability of labor with automated capital; Labor-induced operating leverage (search for similar items in EconPapers)
JEL-codes: G32 G35 J23 O33 (search for similar items in EconPapers)
Pages: 63 p.
Date: 2023-04-18
New Economics Papers: this item is included in nep-cfn, nep-lma and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2023-23

DOI: 10.17016/FEDS.2023.023

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