Workplace Automation and Corporate Financial Policy

We show that firms’ ability to substitute automated capital for labor provides an option to reduce labor-induced operating leverage, allowing for less conservative financial policies. Using an occupational measure of labor’s susceptibility to automation, we find that firms with a more substitutable workforce hold less cash, use more financial leverage, and pay higher dividends. We provide causal evidence by exploiting the 2011–2012 Thailand hard drive crisis as a shock to the cost of automation. Following adverse shocks to cash flow from state tax increases, firms with a more substitutable workforce replace labor with automated capital and increase financial leverage.