|[The 9th AIEA-NBER Conference] Working Paper - Tong Zhou|
INDUSTRIAL ROBOTS AND FINANCE
AIEA Working Paper A210805 Issue date August 2021
We examine theoretically and empirically the effects of industrial robot adoption on firms’
financing. Industrial robots are unique in that they are a substitute for labor, whereas other
types of physical assets are largely a complement for labor. As a result, robots provide a hedge
for fluctuations in the price of labor. Our model shows that robot deployment reduces a firm’s
risk, decreases equilibrium interest rate, and increases debt capacity. We test these predictions
using firm-level panel data on robot deployment in five Chinese provinces across multiple industries.
Consistent with the role of robots in hedging labor price risk, robot adoption leads
to higher leverage and lower cost of debt, at both the extensive and intensive margins. The
staggered nature of the introduction of robot-friendly policies across provinces and industries
allows us to make causal claims. The model’s more refined predictions, concerning the effects of
labor contribution and robot-labor substitution on the strength of the relation between robot
adoption and corporate financing, are also borne out in the data.
Keywords: Industrial robots, leverage, interest rates, labor price uncertainty