Abstract: In recent years, there have been many scandals about the participation of major shareholders in private placement. Whether the participation of major shareholders in private placement has a positive impact on the production and operation activities of enterprises has become an issue of close attention to the regulatory authorities and the public. Based on this, from the perspective of enterprise innovation, this paper selects Chinese A-share listed companies from 2007 to 2019 as samples to test the impact of large shareholders' participation in private placement on enterprise innovation and its mechanism. The results show that the participation of large shareholders in private placement is conducive to enterprise innovation. Further mechanism tests show that large shareholders' participation in private placement can promote enterprise innovation through "internal financial market" mechanism and "supervision effect" mechanism, while "tunneling effect" mechanism will inhibit enterprise innovation. In addition, we found that the "supervision effect" is the most significant among the three mechanisms. The study of this paper not only reveals the influence and mechanism of the participation of major shareholders in private placement on the innovation activities of enterprises, but also contributes to an in-depth understanding of the role of major shareholders in the capital market. In addition, it also provides empirical evidence for the country to use the capital market to promote the innovation strategy.

Key words: block shareholder, private placement, firm innovation