<p>Overcapacity has become an urgent global issue, particularly during economic downturns, where enterprises have grown increasingly cautious in their investment decisions, undermining their dynamism and competitiveness. To address these issues, the Chinese government implemented supply-side structural reform (SSSR), aimed at addressing overcapacity and boosting more resilient and high-quality economic growth. Based on the data of listed companies in the overcapacity industries in China, we take the implementation of SSSR as an external policy shock to systematically explore its influence on the risk-taking capability of overcapacity enterprises. Our empirical results indicate that SSSR significantly promotes the risk-taking levels of firms with overcapacity. This effect is more pronounced in the non-state-owned enterprises or the firms with high leverage, small scale and low bank-firm connection. In addition, SSSR mainly promotes their technological upgrading, enhances their market competitiveness and improves the operation efficiency of capital market, thereby improving corporate risk-taking. Our findings extend the research on firm risk-taking decisions within the context of economic policy reforms, and provide emerging markets with evidence from China. It holds significant implications for addressing overcapacity, enhancing corporate risk-taking, and promoting sustainable economic growth.</p>