Using AI to monitor companies makes their stock price go up, but it kills their ability to actually innovate in the long run.
SSRN · March 18, 2026 · 6310740
The Takeaway
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.
From the abstract
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