How can we explain why some firms become more innovative when having received R&D subsidies whereas others gain less? The economic literature on programmes subsidizing research and development (R&D) has relied on policy- and firm-characteristics to explain how subsidies support more innovation. However, strategy research since long has stressed the impact of managerial characteristics on innovation. We study the impact of a key managerial characteristic, namely, top management team (TMT) diversity. Using a unique matched difference-in-difference design based on a panel dataset of publicly listed Chinese firms between 2008 and 2017, we find supportive evidence that TMT’s international and functional diversity increases the firms’ likelihood of becoming more innovative when having received R&D subsidies. Our results contribute to studies at the nexus between industrial policy and strategic management by flagging out the role of TMT diversity to impactful industrial policies.