Abstract: Based on CMES data, this paper investigates the effect of relationship on the innovation of small and micro enterprises, and explains the mechanism from the perspective of social capital. The empirical results show that the relationship measured by working experience of the most principal owner, the membership of industrial associations, and expenditures for entertaining others due to benefits, promotes innovation vitality and innovation efficiency of small and micro enterprises; secondly, the relationship helps small and micro enterprises to obtain financial support, market support, government support and more policy information to improve innovation vitality and innovation efficiency, which confirms the interpretation of social capital, however, technical support have no significant effect on the innovation.

Key words: small and micro enterprise, innovation, relationship, social capital