Small and medium-sized enterprises (SMEs), which are crucial to promoting the diversity of economy, are among the most active entities of Chinese market. How to promote the innovation of SMEs has raised heated discussion in research and practice. On the basis of the existing literature, this paper further excavates the internal mechanism of the influence of government subsidy on enterprise innovation. The result shows that government subsidy functions as a time-lagged booster in promoting enterprise innovation; Government subsidy does act as the icing on the cake for enterprise innovation in strategic industries, while fail to deliver SMEs fuel in snowy weather during COVID-19 period; Less government intervention in enterprises is beneficial to enterprise innovation. Conclusions in this paper are of practical significance for local financial policy making and enterprise strategy making.