Using AI to monitor companies makes their stock price go up, but it kills their ability to actually innovate in the long run.
While better corporate governance is generally seen as a positive, the 'perfect' surveillance provided by AI-driven investors creates a paradox. It catches errors and boosts stock prices in the short term, but also discourages CEOs from taking long-term risks, leading to a measurable decline in R&D and future-oriented acquisitions.
AI-Powered Corporate Governance
SSRN · 6310740
We examine how Generative AI reshapes institutional investor behavior and corporate governance. Using the November 2022 ChatGPT release as a shock to investors' AI adoption costs, we employ a difference-in-differences design in which treatment reflects firms' pre-shock exposure to machine-based investors, identified through EDGAR access patterns. We find that following the shock, machine-based investors expand portfolio breadth across industries and shorten investment horizons. At the firm level