Artificial intelligence and firm resilience

Abstract

We investigate the role of Artificial Intelligence (AI) on firms’ resilience to the COVID-19 crisis. We show that firms that adopted AI technology before the crisis (AI-adopters) exhibit higher stock returns during the peak of the crisis than non-AI-adopters. This cross-sectional finding also holds in a difference-in-differences setting. Having AI patents is also associated with higher stock returns regardless of the firm adopting AI. We further provide evidence that heterogeneity in AI adoption matters; specifically, our main finding is driven primarily by machine learning. Moreover, AI-adopters exhibit lower stock volatility during the peak of the crisis compared to non-AI-adopters. The resilience that AI adoption brings is also reflected in other firm indicators, such as operating performance and firm valuation. Finally, we find that neither firm ownership nor firm size seems to moderate the relationship between AI adoption and firm stock returns.