AI washing: Strategic disclosure and backlash

As firms increasingly exaggerate artificial intelligence (AI) adoption in disclosures, we analyze market responses to unsubstantiated AI claims. Using BERT-based text classification and AI patent data for U.S. firms (2018-2023), we find that such narratives initially attract investors but ultimately yield negative market reactions and sustained underperformance. Results demonstrate market penalties for AI overclaiming through both short-term investor responses and long-term operational outcomes, extending narrative economics to emerging technologies. The study highlights that while narratives can mobilize attention, markets ultimately punish rhetoric that outpaces implementation.