The “quantity-quality mismatch” trap of patent innovation in Chinese industrial chain enterprises hinders the diffusion of innovation elements along the chain and technological integration, making it difficult to achieve effective breakthroughs in key areas of “bottleneck” technology. From the perspective of industrial chain governance, this paper empirically tests whether institutional vertical shareholding can improve the quality of patent innovation in industrial chain enterprises.

The findings reveal that there is a “U-shaped” nonlinear relationship between the vertical shareholding of institutions embedded in the industrial chain and the quality of enterprise patent innovation. After U-test nonlinear testing, controlling for sample selection bias, and other robustness tests, the above conclusion still holds. Heterogeneity analysis shows that the portfolio weight of institutional vertical shareholding and the asymmetric shareholding in the upstream and downstream of the industrial chain affect their governance behavior. Specifically, supervisory institutional vertical shareholding plays a major role in patent innovation governance. As the degree of asymmetric shareholding in the industrial chain increases, the governance strategy of institutional vertical shareholding from suppliers or distributors gradually evolves from “strategic equilibrium” to “active intervention”, thus improving the quality of enterprise patent innovation. When the shareholding ratio is less than 26.27%, institutional vertical shareholding strengthens the collusive monopoly effect through vertical related-party transactions and monopolistic competition, thereby suppressing the quality of enterprise patent innovation. When the shareholding ratio is greater than 26.27%, institutional vertical shareholding enhances the collaborative governance effect through enterprise supply-demand optimization and director appointment, and enhances the innovation diffusion effect by promoting patent reallocation and citation, thereby improving the quality of enterprise patent innovation.

The conclusions contribute to a better understanding on the micro-level implications and mechanisms of the emerging market phenomenon of institutional vertical shareholding in promoting patent management in industrial chain enterprises, and provide useful references for government regulatory authorities to formulate relevant policies on industrial chain resilience and stability.