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This study examines how firm-initiated clawback provisions in executive compensation contracts affect firms’ investment efficiency. While existing literature provides evidence on positive aspects of adopting clawback provisions, the potential impact of clawback adoption on firms’ long-term investment efficiency remains unexplored. Using three investment proxies (i.e., capital expenditure, new investment, and total investment), we find that clawback adopters tend to reduce their long-term investments after the clawback provisions are put in place, compared to non-adopters. In particular, we find evidence that the adoption of clawback policies decreases investment efficiency in the post-adoption period, especially for the firms whose ex ante probability of under-investment is high. Our additional analyses reveal that observed reduction in investment efficiency for the firms that are likely to under-invest is more pronounced for firms having risk-taking or performance-based clawback triggers. Overall, our findings suggest that the implementation of clawback provisions may lead to unintended consequences for firms’ long-term investment practices, resulting in a decrease in investment efficiency.