Abstract: This paper examines the effect of UI on corporate innovation. The findings reveal that UI promotes corporate innovation, primarily by stimulating exploratory innovation, while its effect on exploitative innovation is not significant. Mechanism analysis indicates that UI enhances firms’ innovation investment—particularly in higher-risk exploratory innovation—through a cash flow effect and a labor allocation effect. Heterogeneity analysis shows that the innovation-promoting effect of UI is more pronounced in firms with better employee care. Furthermore, UI not only at the surface level increases innovation output but also strengthens firms’ independent and breakthrough innovation capabilities. This study contributes to the literature on labor market institutions and innovation.

Key words: unemployment insurance benefits, corporate innovation, exploratory innovation, exploitative innovation