Industrial Robots and Finance

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.