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There is a significant lack of research related to the financing of innovation in the context of emerging economies such as China, and how managers choose between debt and equity financing is still largely not resolved.This paper,utilizing a data sample from Chinese Listed Companies Annual Reports of 2006 to 2011 for regression analysis, sets out to examine the relative costs for external funding (both debt and equity) for innovative firms and how a firms choice of financing affects innovation performance.Our data set and variables allow us to explore financial slack levels combined with firm strategy and corporate govemance as key moderators for the relationship between a firms capital structure and innovation performance.Of note, leverage ratios and patents obtained do not have an inverted-U relationship as expected.Rather, we find evidence that Chinese listed companies with more innovative activities find more debt than equity to be either available or beneficial.Our analysis indicates that the degree to which a firm invests in innovative projects does very little to impact how debt or equity also influence innovation performance.Lastly, our results imply that higher salary for top management may, although not greatly, weaken the influence financial slack has on innovation, and when ownership is more concentrated, it is likely to induce less innovative activity.We conclude that theoretical assumptions surrounding leverage levels and their influence on innovation for Chinese listed firms are likely misunderstood.