Buying AI for your company will actually make you less productive before it makes you better.
April 15, 2026
Original Paper
When Does Artificial Intelligence Raise Firm Productivity? Evidence from Chinese Listed Firms
SSRN · 6569992
The Takeaway
We’re sold on the idea that AI is an 'instant win' for efficiency. But this study of Chinese firms found a 'U-shaped' impact: productivity actually drops when you first start using AI. There is a 'valley of despair' where the cost of training, mistakes, and reorganization outweighs the benefits. It’s only after a long, painful 'deep deployment' that the gains finally kick in. For a regular business owner, this means AI isn't a magic button; it’s a long-term investment that will probably make your life harder for a year before it makes it easier.
From the abstract
Using panel data on Chinese A-share listed firms from 2010 to 2024, we show that Artificial Intelligence (AI) has a U-shaped impact on total factor productivity (TFP): early adoption depresses productivity, while deeper deployment yields substantial gains. This trajectory depends on internal and external conditions. Within the firm, managerial short-termism steepens the U-shaped relationship, whereas greater organizational slack and higher management efficiency flatten it. Outside the firm, a mo