The Impact of Patient Capital on Innovation Quantity and Quality Among SMEs

Drawing on panel data from firms listed on the SME Board and Growth Enterprise Market (GEM) between 2010 and 2024, this study examines how patient capital influences SME innovation. It considers both the quantity and quality of innovation and investigates the underlying mechanisms. Using the China Industrial Enterprises Database (2000–2014), it further explores the innovation effects of patient capital on unlisted SMEs. The empirical findings are as follows. First, patient capital, measured by the proportion of relationship-based debt and stable equity, exhibits a significant and robust positive association with the output and quality of SME innovation, and this association gradually strengthens over time. Second, heterogeneity analyses show that relationship-based debt is more strongly associated with innovation in state-owned enterprises and national-level “Little Giant” firms (specialized, refined, distinctive, innovative SMEs), whereas stable equity is significantly associated with innovation only in private and ordinary enterprises. The association between stable equity and innovation is more pronounced in non-regulated industries, while the association for relationship-based debt remains consistent across industries. Third, mechanism tests reveal that patient capital is linked to SME innovation through four channels: alleviating financing constraints, fostering university–industry–research collaboration, improving knowledge conversion efficiency, and strengthening market power. Fourth, an extended analysis confirms that patient capital is also significantly associated with innovation among unlisted SMEs, indicating strong external validity of the study’s conclusions. Based on these findings, this paper advocates for establishing a long-term financing mechanism oriented toward patient capital, with differentiated allocation and optimization of institutional environments across industries. Such an approach should facilitate three transmission channels—university–industry–research collaboration, knowledge transfer, and market power—while extending policy coverage to unlisted SMEs, thereby nurturing a virtuous cycle ecosystem of “long-term capital → sustained R&D → high-quality innovation.”