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Artificial intelligence, absorptive capacity, and corporate downside risk: Evidence from China

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  • Lei, Xiao
  • Zhuo, Zhenyu
  • Yang, Peijin

Abstract

Using panel data on Chinese listed firms from 2009 to 2023, we develop a text-based keyword dictionary that captures recent advances in artificial intelligence and study, through the lens of absorptive capacity, how artificial intelligence relates to corporate downside risk. We find that higher firm-level artificial intelligence intensity is associated with lower downside risk, and that this relationship operates through enhanced absorptive capacity. Additional analyses show that the effect is stronger among high-tech firms, larger firms, firms facing looser financing constraints, and non-state-owned enterprises. Our evidence sheds light on the economic effects of artificial intelligence within firms in a transitioning economy and offers implications for corporate strategy and policy design.

Suggested Citation

  • Lei, Xiao & Zhuo, Zhenyu & Yang, Peijin, 2026. "Artificial intelligence, absorptive capacity, and corporate downside risk: Evidence from China," Finance Research Letters, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:finlet:v:94:y:2026:i:c:s1544612325026133
    DOI: 10.1016/j.frl.2025.109364
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