Manuscript Type Empirical Research Question/Issue This study tests whether the adoption of clawback provisions mitigates overinvestment. A clawback provision is a recoupment policy that allows certain bonuses previously paid to executives to be cancelled or “clawed back” if financial statements are restated. Research Findings/Insights This study focuses on 1,093 voluntary clawback adopters in the United States during 2006–2012 and uses propensity score matching to obtain a matched sample. We then perform a difference‐in‐differences analysis to assess pre‐ and post‐adoption changes in overinvestment. The empirical results show that (i) clawback provisions mitigate overinvestment, and (ii) overinvestment decreases most for those executives identified as overconfident or receiving higher option compensation. Theoretical/Academic Implications Agency conflict between shareholders and executives distorts a firm's investment decisions. According to the agency‐based explanation, better financial reporting quality decreases information asymmetry. Clawback provisions improve financial reporting and mitigate potential overinvestment under agency conflict. To the best of our knowledge, no other published study has discussed executives’ investment behavior or has reported that one benefit of clawback provisions is mitigating ex post overinvestment. It is important for regulators and academics to understand how clawback provisions impact executives’ behavior. Practitioner/Policy Implications The results of this study provide political implications for mandatory clawback provisions under Section 954 of the Dodd‐Frank Act after 2016 in the US. Given that we show that voluntarily adopting clawback provisions curbs overinvestment, it is important to examine whether this new act should place restrictions on the form of executive pay.