Essay on labor-technology substitution and asset pricing

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dc.contributor.advisorTitman, Sheridan
dc.contributor.advisorDonangelo, Andres
dc.contributor.committeeMemberAlti, Aydogan
dc.contributor.committeeMemberZhang, Mindy Xiaolan
dc.contributor.committeeMemberTuzel, Selale
dc.creatorZhang, Miao, Ph. D.
dc.date.accessioned2016-10-11T17:32:44Z
dc.date.accessioned2018-01-22T22:30:43Z
dc.date.available2016-10-11T17:32:44Z
dc.date.available2018-01-22T22:30:43Z
dc.date.issued2016-05
dc.date.submittedMay 2016
dc.date.updated2016-10-11T17:32:44Z
dc.description.abstractMy dissertation aims at understanding how firms' adoption of labor-saving production technologies affects their investment and employment decisions; and, ultimately, their stock returns. Chapter 1 theoretically studies a firm's decision to replace its routine-task labor with machines over the business cycle, and explores the asset pricing implications of this decision. The model extends the classical investment-based asset pricing models in which a firm's investment decisions are modeled as exercising real options. I extend the set of firm's real options to include both growth options, which increase the firm's output, and technology switching options, which increase the firm's efficiency, and focus on the latter options. A key assumption in my model is that switching from using routine-task labor to using machines interrupts firm production. Hence, the firm optimally chooses to make this switch when its profitability is low in order to minimize opportunity cost. As a result, if the economy experiences a negative shock, firms with routine-task labor can improve their value through exercising these switching options, making their value less sensitive to aggregate shocks. In the cross-section, firms with a higher share of routine-task labor should have lower expected rates of return for their stocks. Chapter 2 constructs an empirical measure of firms' share of routine-task labor, namely, RShare, and presents tests of the model's predictions on the investment, employment, and asset prices of firms with high and low RShares. I classify occupations into routine- and non-routine-task labor, following the labor economics literature, and I use the establishment-level occupational data from the Bureau of Labor Statistics to construct RShare at the firm level. Consistent with my model's predictions, I find that within an industry, firms with a higher share of routine-task labor (i) invest more in machines and reduce disproportionately more of their routine-task labor during economic downturns, and (ii) have lower equity betas and returns.
dc.description.departmentFinance
dc.format.mimetypeapplication/pdf
dc.identifierdoi:10.15781/T2FJ29F2W
dc.identifier.urihttp://hdl.handle.net/2152/41566
dc.language.isoen
dc.subjectLabor-technology substitution
dc.subjectRoutine-task labor
dc.subjectStock returns
dc.titleEssay on labor-technology substitution and asset pricing
dc.typeThesis
dc.type.materialtext

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University of Texas at Austin