Artificial Intelligence and Firm Performance

Given that systems based on artificial intelligence (AI) technologies now match or surpass human levels, more firms are adopting these technologies to gain a competitive advantage. However, the literature has not examined the relationship between AI adoption and its effect on firm performance. To fill this gap, this paper investigates the relationship between AI technology adoption and firm performance, focusing on Tobin’s q, profit, and cost structures. We observe a positive relationship between AI and Tobin’s q, an effect that is more pronounced with adoption of augmentation AI than of automation AI. Moreover, whereas automation AI significantly reduces firms’ cost of goods sold, augmentation AI neither increases profit nor reduces costs. Finally, the cost reduction and value increase are associated more with manufacturing than with service industries.