Workplace Automation and Corporate Financial Policy

We document that a firm’s ability to substitute automated capital for labor is an important determinant of corporate financial policy. Using a novel occupational measure for labor’s susceptibility to automation, we show that firms with a more substitutable workforce hold less cash, use more financial leverage, and pay higher dividends. Following adverse shocks to operating cash flow, firms with a more substitutable workforce are more likely to replace labor with automated capital and increase financial leverage. Taken together, the potential for workplace automation gives firms the option to reduce labor-induced operating leverage, allowing them to adopt less conservative financial policies.