Innovation is the core driver of China’s high-quality development and a critical support for maintaining the dual-circulation economic security framework. Enhancing corporate innovation capabilities has thus become a pressing issue. This study examines A-share listed companies in Shanghai and Shenzhen stock markets from 2010 to 2022, grounded in behavioral economics theory, using deductive reasoning and empirical research methods, to explore the impact of soft budget constraints (SBC) on corporate innovation and its mechanisms. The findings reveal a positive correlation between SBC and corporate innovation. Mechanism tests indicate that executive risk preferences and overconfidence partially mediate this relationship, with SBC improving innovation through these two behavioral pathways. Additionally, executives’ overseas experience and media attention significantly positively moderate the SBC-innovation relationship. Heterogeneity analysis shows that firm size, technological dependence, and regional factors influence this relationship. Further research demonstrates that SBC enhances corporate innovation resilience. This study provides theoretical support for firms to strategically leverage SBC and gain a competitive edge in innovation markets.