(The) impact of artificial intelligence on firm performance

Abstract

For the last decade, Artificial Intelligence (AI) has been emerging as one of the major technologies for the business process in a variety of industries, transforming our society and business environment itself. Therefore, it is important to understand how it contributes to firm-level performance. However, there is a lack of understanding about the practical value of AI in firm-level with empirical data. To fill this gap, the purpose of this paper is to develop the theoretical links and empirically examine the association between AI technology and firm performance. In particularly, we analyzed the impact of AI by dividing performance into firms’ valuation, cost structure, and profit structure. This study used business description in firm’s annual report to determine whether to adopt AI and the US financial database to measure firm performance. Using a difference in differences methodology, our research indicates that adoption of AI technology has positive impact on firm valuation by increasing Tobin’s q. In addition, in terms of cost structure, sales and administration cost ratio have decreased due to adoption of AI. Lastly, in the profit structure, operating income per asset ratio of firms adopting AI is higher than those of firms not adopting AI. This finding supports the view that AI adoption is a “Competitive advantage” that allow firms adopting AI to differentiate from their competitors.