In state-owned enterprises (SOEs) with a mix-ownership structure, non-state ownership shareholders may experience an identity crisis regarding their role within the firm, leading to an ambiguous interpretation of the impact of organizational hybridity on corporate misconduct. Adopting an identity work perspective, this work proposes two identity interaction effects between majority state shareholders and minority non-state shareholders in SOEs—identity divergence leading to a positive association between non-state ownership and corporate misconduct, and identity convergence resulting in a negative relationship. The juxtaposition of these two opposing effects implies an inverted-U relationship between non-state ownership and corporate misconduct in SOEs. Further, this effect is moderated by three contingencies—media coverage, regional inspection and participation of non-state shareholders in governance. We empirically examine and provide empirical support for our arguments using a 12-year panel dataset of Chinese publicly listed SOEs. This work contributes to the organization hybridity and corporate misconduct literature.