Artificially Intelligent or Artificially Inflated? Determinants and Informativeness of Corporate AI Disclosures

Abstract

Artificial Intelligence (AI) is emerging as a General Purpose Technology (GPT) with the potential to transform industries, yet firms face both opportunities for genuine AI adoption and incentives to misrepresent AI capabilities. The intangible nature of AI investments and difficulty in verifying AI usage create conditions for ‘AI washing’—where firms overstate AI engagement to attract investors and enhance valuations. Using textual analysis of corporate disclosures and firm-level AI employment data from 2016 to 2023, we document four key findings. First, AI disclosures are more prevalent among firms in AI-intensive industries, those with high innovation, and those facing greater investor scrutiny. Second, AI disclosures are positively associated with future operational efficiency and AI patent filings, but negatively correlated with dividend payouts, consistent with firms reinvesting AI-driven productivity gains rather than distributing excess cash. Third, firms that disclose AI without hiring AI-related employees—suspected AI washers—do not experience these outcomes and tend to be smaller, less innovative, and in non-AI-intensive industries. Finally, firms making real AI investments outperform AI washers in long-term abnormal returns, reinforcing the role of complementary human capital in unlocking AI’s value. Our findings highlight that AI disclosures provide valuable market signals, but only when paired with real investments in AI-related human capital. As AI adoption accelerates, distinguishing between genuine AI integration and strategic misrepresentation will be critical for investors, regulators, and policymakers assessing firm value and the broader economic impact of AI.