The Property Rights Theory states that clearly defined ownership is the premise of efficiency, while ambiguous property rights result in great externalities. We use the establishment of local SASACs as a quasi-natural experiment to investigate how unifying the supervision rights and responsibilities internalizes externalities and enhances SOEs’ innovation. The primary results show that the total innovation outputs and high-quality innovation outputs of SOEs governed by local SASACs (i.e., treatment group) improve after creating SASACs. The mechanism analyses show that both the pyramids level and risk-bearing level of local SOEs increase. In cross-sectional tests, we unravel that the innovation improvement effect is subject to the following five factors, including SASACs’ independence, local government quality, industry competition, SOEs managers’ motivation for promotion, and whether the SOE is in high-tech industry. Our paper provides empirical evidence for evaluating the innovation effect of the establishment of local SASACs with a quasi-natural experiment when the public ownership of SOEs does not change. Chun