Human-Centric AI Linked to Lower Firm Idiosyncratic Risks

The impact of human-centric AI (HCAI) on a firm's idiosyncratic risks (IR) has been largely unexplored, despite growing discussions around HCAI in Industry 5.0. Idiosyncratic risk, which reflects investor reactions to a company's unique AI strategies and implementations, is crucial for firms navigating financial risks during technological shifts. This research conceptualizes HCAI as a situated AI strategy designed to mitigate AI-related ethical risks and cultivate synergistic relationships between AI and human operations. By aligning with diverse stakeholder expectations, HCAI is hypothesized to reduce IR. The study also considers various socio-technical factors that might influence this relationship, including digitalization, operational efficiency, executive shareholding, and the presence of CEOs with IT backgrounds. Using a multi-source panel dataset of Chinese listed firms from 2015 to 2023, the findings confirm that HCAI is indeed associated with lower firm idiosyncratic risks. Furthermore, digitalization and executive shareholding were found to strengthen this risk-reducing effect. Interestingly, operational efficiency and CEOs with IT backgrounds surprisingly attenuated the positive impact of HCAI on risk reduction, suggesting complex interactions that warrant further investigation.