<p>This research aims to address the controversy regarding the impact of restricted stock incentives (RSIs) on corporate innovation by clarifying the incentive targets and the stages of corporate innovation. Building on property rights theory and the knowledge-based theory of the firm, it identifies core employees' firm-specific knowledge investments and knowledge integration as key channels through which RSIs influence innovation implementation and, subsequently, innovation output. Furthermore, this research identifies how the equity incentive disparity between executives and core employees influences the effect of RSIs on corporate innovation. We collected data from 565 non-financial Chinese listed companies, all of which exclusively adopted RSIs. Data analysis utilized propensity score matching (PSM) and difference-in-differences (DiD) approaches. The results support our theoretical framework. The results are robust to PSM approach, instrumental variable test, model specification, and industry effects. Further analyses reveal that the positive impact of RSIs on corporate innovation is more significant in high-tech firms and non-state-owned enterprises. Internal monitoring (human resource management regulations) exhibits a U-shaped moderating effect, while strengthened external monitoring (analyst coverage) further enhances the innovation-promoting effect of RSIs.</p>