Finance and Economics Discussion Series (FEDS)
April 2023
Workplace Automation and Corporate Liquidity Policy
Thomas W. Bates, Fangfang Du, Jessie Jiaxu Wang
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, Corporate liquidity policy, Labor-induced operating leverage, Operating flexibility, Substitutability of labor with automated capital
DOI: https://doi.org/10.17016/FEDS.2023.023
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