The main objective of this study is to empirically examine two aspects of financial reporting quality (FRQ), i.e., accrual earnings management (AEM) and real earnings management (REM), and their impact on two aspects of investment efficiency, i.e., overinvestment and underinvestment. By examining the interplay between these complex constructs, this research endeavors to provide deeper insights and contribute to a more comprehensive understanding of the effects of AEM and REM on investment efficiency. This study utilizes samples from publicly listed companies domiciled in the U.S. for the years from 2000 to 2020, and employs a range of techniques to examine the research hypotheses, including the generalized method of moments (GMM) and multinomial logit with two-way dimensional clustering. The results demonstrate a positive relationship between financial reporting quality and investment efficiency specifically, a negative association exists between financial reporting quality and both underinvestment and overinvestment. By employing robust analytical techniques, this research contributes to the scholarly discourse surrounding these two aspects of financial reporting quality (AEM and REM) and their effect in shaping present and future investment.