AI washing in technology markets: The divergent roles of patient capital in innovation signaling distortion

As artificial intelligence (AI) becomes a central driver of innovation and competitive advantage, firms increasingly rely on AI-related narratives to signal technological capabilities to external stakeholders. However, such signaling may deviate from actual technological activities, giving rise to AI washing (AIwash), which can distort the interpretation of firms' technological capabilities and undermine the credibility of AI-related signals in emerging technology markets. Drawing on a contract-based perspective, we examine how heterogeneous forms of patient capital are associated with AI signaling distortion. Using a sample of Chinese A-share listed firms from 2007 to 2024, we find that equity-type patient capital (PCS) is negatively associated with AIwash, and this association is related to stronger governance and reputational discipline. In contrast, debt-type patient capital (PCD) is positively associated with AIwash, and this association is related to earnings management. The decomposition of disclosure–activities divergence indicates that PCS is primarily associated with lower levels of AI over-claiming, whereas PCD is associated with higher levels of over-claiming. Moreover, financing constraints positively moderates the relationship between PCD with AIwash. Heterogeneity analyses show that the negative association between PCS and AIwash is stronger in high-technology industries, star firms, and firms in mature and declining stages, whereas the positive association between PCD and AIwash is primarily concentrated in non-high-technology industries, non-star firms, and growth-stage firms. Overall, the findings contribute to the literature on innovation signaling and technology governance by showing that different financial contract structures are systematically associated with the credibility of AI-related technological signaling in emerging technology markets.