This study theoretically and empirically examines the impact of intangible capital on firm markups. The current research follows Altomonte et al. (2021) and first establishes a theoretical framework of intangible capital affecting firm markups. Accordingly, this study finds that an increase in intangible capital results in an increase in firm markups via the “production efficiency” channel but a decrease in firm markups via the “market-based pricing” channel. We use the data of Chinese manufacturing firms to further empirically study the influence of intangible capital on firm markups and its influencing mechanism. After a series of robustness and endogeneity tests, this research finds that intangible capital is conducive to increasing firm markups. Results of the empirical analysis also reveal that the positive impact of an increase in intangible capital on the markups of Chinese manufacturing firms via the “production efficiency” channel are higher than the negative impact of an increase in intangible capital via the “market-based pricing” channel. Moreover, the impact on the markups of different types of firms are not the same, with significant heterogeneity characteristics. This study provides micro evidence from a large developing country on how intangible capital affects the change in firm markups, thereby providing a new perspective on the economic effects of intangible capital.