Fake It Till You Break It! AI-Washing and Fraud Triangle in Digital Transformation

Abstract

Unethical corporate practices such as fraud, misrepresentation, and greenwashing can seriously damage organizational trust. As digital transformation continues, new forms of misconduct such as AI-washing are also becoming more common. This study employs a mixed-method approach to examine the impact of corporate digitalization on AI-washing and its organizational consequences. Study 1 quantitatively examines relationships between digitalization, AI-washing, and outcomes such as corporate reputation, organizational legitimacy, corporate embarrassment, and stakeholder skepticism, while study 2 qualitatively explores the underlying reasons behind the findings of study 1. The findings reveal that corporate digitalization is positively associated with AI-washing. Moreover, AI-washing was found to be significantly impacting the organizational outcomes such as corporate reputation, organizational legitimacy, corporate embarrassment, and stakeholder skepticism.