["Journal of Economics &Management Strategy, EarlyView. ", "\nABSTRACT\nAlthough numerous studies compare the R&D performance of state‐owned enterprises (SOEs) and nonstate‐owned enterprises (NSOEs), few investigate the underlying mechanisms. Using a novel data set on the market value of patents held by Chinese publicly listed firms, we find that SOEs generate lower private economic value from innovation than NSOEs, while the scientific value of their innovations does not differ significantly. Our analysis suggests that the ownership‐related gap in R&D performance arises more from differences in firm objectives than from differences in capabilities. Specifically, SOEs exhibit weaker profit‐seeking incentives, which lead to lower private returns on innovation. These findings imply that SOEs' R&D activities generate greater positive externalities than those of NSOEs, underscoring the distinctive social contributions of SOE innovation and its nonsubstitutability by NSOE innovation.\n"]