Abstract: Based on innovative economic theory,resource-based theory,and sustainable competitive advantage theory,an innovation capability index system of Chinese listed companies covering 17 indicators from three dimensions is established:innovation input ability,innovation output ability and innovative sustainable development ability. Combination weighting method which combines subjective and objective weighting results was used to determine the index weights. The data of the 1 263 A-share listed companies from 2015 to 2016 year was used as a sample to calculate the innovation ability index. And based on the assumption that equity remuneration could enhance the innovation capability of the company,the validity of the index is tested by using a combination of propensity score matching and difference-in-difference (PSM-DID). The results show that:(1) Six main indicators has higher weight on the innovation capability evaluation index system,including patent quality,R&D investment ratio,capitalized R&D investment ratio,proportion of undergraduate and above employees,proportion of technicians,and R&D growth rate.(2) Companies with better performance on innovation have higher levels of R&D,higher proportion of technicians,higher qualifications of employees,and better profitability. (3) The empirical results verified the validity of the Innovation Capability Index.