Managerial Prosocial Preferences and Automation Innovation

Automation can displace and cause significant harm to existing employees. We propose that managers’ prosocial preferences, specifically their desire not to harm their employees, deter investing in automation innovation. Using both novel and previously-used proxies of prosocial preferences (e.g., use of ‘we’ vs. ‘they’ pronouns during earnings calls and employee-prosocial language in annual reports, charity engagement, and Machiavellianism score), we show that managerial prosociality decreases automation innovation in US public firms while having a weaker effect on non-automation innovation. This effect is stronger when financial slack provides managers with greater discretion and weaker when the cost of unemployment is lower for employees due to stronger social safety nets. In a complementary laboratory experiment, we show that aversion to displacing employees links prosociality to underinvestment in automation. Our study highlights prosocial preferences as a novel source of heterogeneity that shapes the direction of firm innovation and provides a richer psychological foundation for managerial decision-making that extends beyond self-interest and career concerns.