More Robots Less Cost of Equity

This paper investigates the importance of robotics usage on firms' implied cost of equity. We find that robotics (both installations and operational stock) has significant negative explanatory power for a firm's cost of equity. More specifically, robotics contribute to firms' operating flexibility and operating margin, hence, decreasing their cost of equity. The results are robust to various firm- and industry-specific controls, and industry-level implied cost of equity regressions. Finally, exploit the 2011 major flooding in Thailand as an exogeneous shock to automation prices and use instrumental variable estimators to provide causal interpretation of the relation between robotics and the implied cost of equity