The effects of financial reporting and disclosure on corporate investment: A review

A fundamental question in accounting is whether and to what extent financial reporting facilitates the allocation of capital to the right investment projects. Over the last two decades, a large and growing body of literature has contributed to our understanding of whether and why financial reporting affects investment decision-making. We review the empirical literature on this topic, provide a framework to organize this literature, and highlight opportunities for future research. •This paper reviews the evidence bridging a large literature in finance and economics on corporate investment decisions with the literature on effect of corporate disclosure in resolving information frictions.•A growing body of evidence suggests that various aspects of a firm's disclosure decisions and information environment affects investment decisions. We provide a framework for understanding why corporate disclosure might affect investment decisions that encompasses both information asymmetry frictions arising from agency conflicts and learning models in the presence of uncertainty about investment opportunities.•We highlight the limitation of prior research and highlight several opportunities for future research.