The evolving economic landscape in China requires enterprises to adopt an innovation-driven development approach. In this new environment, asset-light transformation has emerged as an important method for economic transformation. Our research, centered around the acquisition and divestment of light assets within industrial enterprises, reveals that companies with lighter assets tend to apply for more patents, resulting in a substantial improvement in total factor productivity (TFP). Our findings indicate that implementing an asset-light strategy can lead to the increase in patent filings and a remarkable enhancement in TFP. To conduct our study, we utilized a comprehensive database comprising micro data from the Tsinghua China Data Center (2014-2016), industrial enterprises database (1999-2013), industrial enterprises patent database, and CSMAR database acquisition. Through this data, we constructed indicators for assessing the effectiveness of the asset-light strategy, differentiating between heavy assets (equipment, plant, land, and other fixed assets, including land use rights) and light assets (technology patents, brands, and other non-land use rights). Moreover, we discovered that the impact of light assets on innovation transformation varies across different ownership structures, industrial concentrations, and industry financing dependencies. Specifically, asset-light transformation has a more pronounced effect on innovation and overall efficiency in fragmented industries and those reliant on financing.The adoption of asset-light transformation has proven to improve enterprises′ innovation capabilities. Firstly, implementing asset-light strategies enables enterprises to strengthen their position within the industrial value chain. Secondly, asset-light research and development (R&D) outsourcing mitigates R&D risks while allowing enterprises to leverage their comparative advantages, thereby improving their innovation capacity. Thirdly, asset-light approaches assist enterprises to resist the adverse effects of the COVID-19 pandemic. The emergence of online trading platforms and information service providers has opened up new business opportunities, offering enterprises an effective pathway for digital transformation. On the one hand, the first mechanism by which light assets drive innovation lies on their ability to encourage firms to prioritize their main product business and achieve a competitive edge through differentiation. By reducing competition in weaker businesses, companies can enhance their innovation competitiveness. At the micro level, R&D activities serve as specific investments. Firstly, incomplete R&D contracts between enterprises and buyers introduce uncertainties due to the long production cycle associated with R&D activities. Consequently, enterprises may not invest sufficient resources in building robust relationships necessary for successful R&D endeavors. Secondly, in highly competitive environments, enterprises are more inclined to adopt asset-light strategies to avoid direct competition. Capital-light transformation improves the concentration on core business operations, enabling companies to outsource low-end production links and divest heavy assets. By focusing their limited internal resources of enterprises on high-value activities like R&D and marketing, enterprises can increase their competitive advantage in the primary market. Finally, through asset-light mergers and acquisitions and other strategic approaches, enterprises can acquire key resources and offer the market distinctive products and services, thereby improving their product competitiveness. This, in turn, amplifies the intensity of innovation and R&D efforts.On the other hand, the second mechanism stems from the firm′s ability to boost operating cash flow and reduce capital costs. By adopting an asset-light strategy, companies can alleviate short-term repayment pressure and allocate resources more efficiently, ultimately driving innovation. When opting for an asset-light strategy, enterprises must carefully assess its impact on resource allocation and its subsequent effect on innovation. Furthermore, asset-light strategies lead to increased operating cash flow and decreased capital costs, thereby improving the level of innovation.The policy implications can be summarized as follows. Firstly, the government should provide robust guidance and support for enterprises embracing asset-light strategies. Leveraging the innovation potential of light assets can help firms in recovering from the impact of the Covid-19 pandemic by reducing capital costs and promoting the transition towards online services and digitalization. Secondly, China′s financial policies should be appropriately adjusted to facilitate the adoption of resource allocation mechanisms suited for asset-light strategies and reduce financing costs. This adjustment can improve the resilience of corporate cash flow and reduce short-term pressures. Thirdly, China should actively encourage enterprises to pursue diverse forms of capital-light innovation. This can be achieved by relaxing relevant policy restrictions and fostering synergy between technological innovation and financial innovation. By doing so, enterprises can alleviate burdens and drive economic recovery in the post-pandemic period.