Talk, Walk, and Market Response: Multimodal Measurement of AI Washing and Its Capital Market Consequences in China

Abstract

As artificial intelligence and generative large language models drive industrial upgrading, capital markets increasingly focus on AI-themed listed firms. Information asymmetry and technological opacity lower the cost of exaggerating AI capabilities relative to genuine R&D, spurring widespread AI Washing. Using China's A-share market from 2018Q1 to 2025Q2, we advance literature in measurement and mechanism testing. We construct a multimodal AI Washing Risk Score (AWRS) via Qwen-VL to assess text-image consistency in annual reports and roadshows, and a Material Real-Investment Matching Index (MRMI) from patent quality, AI intangible asset capitalization, and technical personnel compensation using PCA. Four findings emerge: (1) AWRS lacks predictive power for future MRMI, with a wider rhetoric-action gap among financially constrained firms; (2) substantive AI investment boosts high-quality patents, while empty rhetoric crowds out industry innovation; (3) long-horizon institutional investors detect AI Washing through site visits and reduce holdings; (4) such divestment triggers analyst downgrades, retail selling, and sharp valuation corrections within 180 days. Results are robust to IV-2SLS and staggered DID using the ChatGPT shock. This study enhances disclosure and pricing-efficiency research and supports RegTech for curbing thematic speculation.