We examine empirically and theoretically the effects of industrial robot adoption on corporate financing. Empirically, using firm-level panel data on robot deployment in China, staggered across both provinces and industries, we find that robot adoption reduces the cost of debt and increases leverage. We hypothesize that the underlying reason is that being a substitute for labor, robots provide a hedge against fluctuations in labor costs. A model based on this hedging argument delivers additional testable predictions concerning determinants of the relation between robot adoption and corporate financing, which are borne out in the data, providing support for the proposed mechanism. Our evidence is inconsistent with alternative channels behind the observed relations.

We analyze the effects of exposure to industrial robots on labor markets and household behaviors,exploring longitudinal household data from China. We find that a one standard deviation increase in robot exposure led to a decline in labor force participation (-1%), employment (-7.5%), and hourly wages (-9%) of Chinese workers. At the same time, among those who kept working, robot exposure increased the number of hours worked by 14%. These effects were concentrated among the less educated and larger among men, prime-age, and older workers. We then explore how individuals and families responded to increased exposure to robots. We find that more exposed workers increased their participation in technical training and were significantly more likely to retire earlier. Despite the negative impact on wages and employment, we find no evidence of an effect on consumption or savings, which is explained by an increase in borrowing (+10%). While there is no evidence of an effect on marital behavior, we document that robot exposure led to a small decline in the number of children (-1%). Finally, we find that robot exposure increased family time investment in the education of children (+10%) as well as the investment in children’s after-school academic and extra-curricular activities (+24%).