This paper employs the multi-period difference-in-difference model and dynamic analysis model to test the impact of the switching market on corporate innovation and its mechanism. Compared with non-swicthed companies, innovation investment and innovation output of NEEQ innovation layer companies increased significantly after switching to a higher-level capital market, and the promotion effect could last at least 2 years. Results show that the innovation improvement following the switch due to the enhancement of external oversight and attraction to innovative talent. Moreover, based on the analysis of firm heterogeneity characteristics, this paper finds that the more competitive firms have a significant increase in both innovation investment and innovation output after switching market, and companies with two-power integration or more innovative firms have a significantly higher investment in innovation after switching, whilethe innovation output of companies with non-dual power integration or less innovative firms will promote after switching market. Further research shows that switching market cannot alleviate the financing constraints of enterprises, nor will it aggravate the short-sightedness of managers. The existing mechanism of IPO affecting enterprise innovation is not applicable to the swithing market situation.The conclusion of this study is helpful to scientifically evaluate the cultivation function of the NEEQ for SMEs’ innovation, and provides practical evidence for market regulators to promote the innovation of SMEs through the institutional arrangements.