<p>Innovation is an endogenous driving force of high-quality economic development and structural transformation in China. Using major institutional investors, this study explores the impact of exit threat mechanisms and corporate decision-making on enterprise innovation output quality. Empirical results show that the exit threat of institutional investors reduces information asymmetry in innovation activities, alleviating the short-sighted or self-interest behaviours of internal decision-makers in the innovation process to improve the enterprise innovation quality. Meanwhile, the threat of institutional investors withdrawing from innovation activities enhances the efficiency of innovation resource utilisation and capabilities and promotes high-quality innovation by alleviating agency problems in innovation activities. Robustness tests are conducted by using alternative explanatory and dependent variables, and the results remain robust. Instrumental variable, Heckman tests, and fisrt-difference model tests are conducted to examined the endogeneity generated by the omitted variables, self-selection and reciprocal causal problems, and the conclusion still holds. Results indicate that in emerging countries such as China, improving diversified equity structures and strengthening the regulatory role of major external shareholders help promote the quality development of enterprise innovation, enhance China’s technological innovation capabilities, and help build an innovative country.</p>