Abstract: Based on firm level data in Shanghai from year 2008 to 2014, and using Propensity Score Matching method to analyze whether government R&D subsidies can promote the state-owned enterprises and private enterprises of innovation and technological progress, we found that: As for SOEs, R&D subsidies can neither significantly affect the number of patent applications nor significantly affect their total factor productivity; As for private enterprises, R&D subsidies can significantly increase the number of patent applications, but also significantly reduce their total factor productivity. Those reflect that SOEs lack the incentive and have low innovation efficiency, and information asymmetry between the government and firms causes principal-agent problems. Therefore, the government should establish a scientific assessment mechanism and reasonable incentive mechanism in R&D subsidy policy, while to further promote the professional manager system and improve the market mechanism is needed for SOEs.