Media Coverage of Labor Issues and Artificial Intelligence Innovation

Artificial intelligence (AI) technology has increasingly become part of firm productions, attracting researchers to explore the consequences of AI on firms and labor markets. In this study, by contrast, we investigate an important antecedent of AI innovation—media coverage of labor issues. By disseminating negative news on firms’ labor-related misconducts to the public, media scrutiny of labor issues can be detrimental to firm reputation and legitimacy, thereby generating direct and indirect labor-related costs and imposing strong institutional pressures on firms to pursue strategic changes. Examining U.S. publicly listed firms, we find that such media scrutiny propels firms toward AI innovation, whose automation and augmentation effects could enable firms to address labor issues, minimize labor-related costs, and thus project a favorable public image in the eyes of external stakeholders. Meanwhile, as the benefits of AI require a long period time to materialize, we further investigate boundary conditions, showing that the effect of media coverage of labor issues on AI innovation is stronger when firms find more support from long-term governance actors, reflected by a higher level of dedicated institutional ownership, and weaker when firms are surrounded by more short-term governance actors, evidenced by a higher level of transient institutional ownership. In addition, we find that this effect is stronger for firms operating in industries that are more labor-intensive, in which media coverage of labor issues imposes stronger pressure on firms, and firms are thus more motivated to respond to the media scrutiny. This effect is also stronger for firms operating in industries with higher exposure to AI technologies, in which firms are more capable of engaging in AI innovation. This study contributes to information systems (IS) research by unpacking media coverage of labor issues as an external antecedent of AI innovation and highlighting media scrutiny as an institutional pressure for firms to seek technology development