Automatability and Capital Structure
This paper investigates the effect of automatability (a firm’s exposure to automation technologies) on capital structure decision and finds that automatability has a positive impact on a firm’s financial leverage. The results suggest that automatability compresses wage premium demanded by workers for financial distress and weakens labor market protection, both of which allows firms to increase financial leverage. We instrument a firm’s exposure to automation technologies using the robotics adoption in European countries and find that the results are not driven by any endogeneity concerns. Our paper highlights the interaction between automation technologies, workforce and corporate capital structure.