Robots and cost of equity: Evidence from China

There are two competing perspectives regarding the nexus between robotics adoption and the cost of equity. One view posits that robotics adoption allows firms to cut more jobs when necessary, leading to decreases in the cost of equity, thanks to technological advances and improved efficiency. Another view, however, postulates that robotics adoption may disrupt workforce morale, prompting shareholders to demand higher returns to offset perceived operational risks, thereby increasing the cost of equity. To empirically examine these conflicting effects, this study analyzes data from Chinese publicly traded firms spanning 2006 to 2019. Leveraging industry-level metrics on robotics adoption from the International Federation of Robotics and a panel of Chinese listed firms, this study identifies a robust negative association between robotics adoption and the cost of equity. Mechanism analysis reveals that robotics impacts firms' cost of equity via two opposing channels: operating leverage and employee satisfaction, with the former dominating the latter. This research enriches a growing body of literature on automation technologies by offering solid evidence from Chinese firms and sheds light on how robotics adoption influences firms' cost of equity.