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This paper investigates the dynamic relationship between mandatory disclosure quality and investment efficiency.
Through building a three dates’ model in which the firm’s investment decision is jointly affected by the short-term
share price in the capital market and by the total cash flows of the firm, the paper analyzes the impact of strategy of information
disclosure of investment efficiency. The results show that when the firm’s mandatory disclosure quality is very
low, it cannot affect the firm’s investment decision; when the firm’s mandatory disclosure quality is enhanced, it can reduce
overinvestment or underinvestment and leads to enhancing investment efficiency. Further, this paper uses 3,726
samples of Chinese listed firms during the period 2008-2013 to test the empirical model and finds that the mandatory disclosure
quality is negatively associated with underinvestment and overinvestment. This paper contributes to expand the
information disclosure literature by examining the consequences of information disclosure.