Outward foreign direct investment (OFDI) has significantly contributed to the promotion of highquality economic growth in China and is expected to continue enhancing this potential. The stimulation of innovative outcomes resulting from high-level investments is essential for achieving this goal. This study assesses the investment efficiency of OFDI enterprises utilizing data from China’s A-share listed companies, covering the period from 1999 to 2020. It explores and clarifies the impact and underlying mechanisms through which inefficient investments affect enterprise innovation. The analysis yields three primary findings. First, insufficient investment considerably impedes enterprise innovation, with underinvestment having a more substantial effect than overinvestment. Second, inefficient investment affects enterprise innovation by influencing production efficiency,management efficiency, and profitability. Third, the impact of inefficient investment on innovation varies based on factors such as enterprise size, ownership structure, industry characteristics, investment distribution, and investment structure. Enterprises that are small-scale, privately owned, operating in highly competitive and high-tech sectors,exhibiting weak diversification, and demonstrating high concentration are particularly susceptible to these effects.