AI Investment and Firm Productivity: How Executive Demographics Drive Technology Adoption and Performance in Japanese Enterprises

TL;DR

This study examines how executive demographics influence AI investment and firm productivity in Japanese companies, revealing that younger, technically skilled CEOs are more likely to adopt AI, leading to significant productivity gains through cost, revenue, and innovation channels.

Contribution

It introduces a novel framework linking executive demographics to AI investment and quantifies the productivity impacts in Japanese enterprises.

Findings

AI investment increases firm productivity by 2.4%.

Younger executives are 23% more likely to adopt AI.

AI adoption could boost Japanese GDP by 1.15 trillion JPY.

Abstract

This paper investigates how executive demographics particularly age and gender influence artificial intelligence (AI) investment decisions and subsequent firm productivity using comprehensive data from over 500 Japanese enterprises spanning from 2018 to 2023. Our central research question addresses the role of executive characteristics in technology adoption, finding that CEO age and technical background significantly predict AI investment propensity. Employing these demographic characteristics as instrumental variables to address endogeneity concerns, we identify a statistically significant 2.4% increase in total factor productivity attributable to AI investment adoption. Our novel mechanism decomposition framework reveals that productivity gains operate through three distinct channels: cost reduction (40% of total effect), revenue enhancement (35%), and innovation acceleration (25%). The results demonstrate that younger executives (below 50 years) are 23% more likely to adopt AI technologies, while firm size significantly moderates this relationship. Aggregate projections suggest potential GDP impacts of 1.15 trillion JPY from widespread AI adoption across the Japanese economy. These findings provide crucial empirical guidance for understanding the human factors driving digital transformation and inform both corporate governance and public policy regarding AI investment incentives.