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Artificial Intelligence Makes Firm Operating Performance Less Volatile

Author

Listed:
  • Tania Babina
  • Anastassia Fedyk
  • Alex He
  • James Hodson

Abstract

How does artificial intelligence (AI) affect the volatility of firms' operational performance? We leverage detailed employer-employee data to link firm-level AI investments to the volatility of firm sales, earnings, and cash flows. Our results indicate that firms that invest more in AI experience reductions in the volatility of all three measures of operational performance compared to firms with lower AI investments. This finding highlights how adoption of technologies such as AI can benefit firms not only by increasing the first moment of their operational performance (e.g., raising sales) but also by reducing the second moment (lowering volatility).

Suggested Citation

  • Tania Babina & Anastassia Fedyk & Alex He & James Hodson, 2025. "Artificial Intelligence Makes Firm Operating Performance Less Volatile," AEA Papers and Proceedings, American Economic Association, vol. 115, pages 35-39, May.
    • Handle: RePEc:aea:apandp:v:115:y:2025:p:35-39
    DOI: 10.1257/pandp.20251002
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    More about this item

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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