Abstract: From the perspective of behavior finance, we built up the research structure as industrial policy-investor attention-firm’s innovation strategies, we apply Multinomial Logit-Mediating effect Model with the panel data of a share listed companies from 2011 to 2015 to analyze the impact and mechanism of industrial policy on firm innovation strategies. The results showed that, comparing with patents of invention, firms who receiving industrial policy can increase the number of their patents of utility models and design。Furthermore, due to the limited investor attention in Chinese stock market, industrial policy can bring “investor attention effect”, stock market inefficiency will further induce firm managers to choose lower quality innovation. Meanwhile, for SOEs or firms with political links, it is the “investor attention effect “that matters when making innovation decisions. The results will provide practical evidence on how to make both industrial policy and stock market help firm build real innovation ability.