This paper examines the relationship between financial reporting quality and investment efficiency, focusing on whether higher quality financial reporting reduces over-investment or under-investment. The study integrates two prior works and finds that higher financial reporting quality is associated with both lower over-investment and lower under-investment. Firms with higher financial reporting quality deviate less from predicted investment levels and are less sensitive to macroeconomic conditions. The research suggests that improved financial reporting reduces information asymmetry, mitigating frictions like moral hazard and adverse selection that hinder efficient investment. The authors use three approaches to test their hypotheses, including analyzing firm-specific characteristics, modeling expected investment levels, and examining aggregate investment trends. They find that financial reporting quality is negatively associated with investment in firms prone to over-investment and positively associated with investment in firms prone to under-investment. The study also considers alternative governance mechanisms but finds that the effect of financial reporting quality on investment efficiency remains significant. The results highlight the importance of financial reporting quality in enhancing investment efficiency, with implications for both macroeconomic growth and firm-level returns.This paper examines the relationship between financial reporting quality and investment efficiency, focusing on whether higher quality financial reporting reduces over-investment or under-investment. The study integrates two prior works and finds that higher financial reporting quality is associated with both lower over-investment and lower under-investment. Firms with higher financial reporting quality deviate less from predicted investment levels and are less sensitive to macroeconomic conditions. The research suggests that improved financial reporting reduces information asymmetry, mitigating frictions like moral hazard and adverse selection that hinder efficient investment. The authors use three approaches to test their hypotheses, including analyzing firm-specific characteristics, modeling expected investment levels, and examining aggregate investment trends. They find that financial reporting quality is negatively associated with investment in firms prone to over-investment and positively associated with investment in firms prone to under-investment. The study also considers alternative governance mechanisms but finds that the effect of financial reporting quality on investment efficiency remains significant. The results highlight the importance of financial reporting quality in enhancing investment efficiency, with implications for both macroeconomic growth and firm-level returns.