This study examines the influence of China’s patent pledge policy on the stability of stock prices for Chinese listed businesses. We find that when businesses use patent rights as collateral for loans, the probability of stock price crash increases. Additionally, this unfavorable effect is more pronounced in businesses with strong financial standing, excessive managerial confidence, and serious agency problems than in businesses with weak financial standing, non-excessive managerial confidence, and non-serious agency problems. Indeed, a mechanism analysis reveals that the patent pledge policy aggravates management’s excessive investment and contributes to stock price instability. Furthermore, the pledge financing process and corporate financing goals are not sufficiently transparent and lack internal and external supervision, due to the challenges associated with determining the value of patent rights, the lack of awareness of risk control in the pledge process, and the imperfections in pertinent policies and systems.