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
PDF: Full Paper
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.