Working Paper

Workplace Automation and Corporate Liquidity Policy

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;

JEL Classification: G32; G35; J23; O33;

https://doi.org/10.17016/FEDS.2023.023

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2023-04-18

Number: 2023-023

Pages: 63 p.