This study selects the financial data of Chinese non-financial listed companies from 2012 to 2021 as the research sample and empirically examines in detail the impact of financial asset allocation on enterprise upgrading and its mechanism. The study finds that financial assets have a dual influence on enterprise upgrading. Short-term financial assets provide the necessary funds for production activities, thus promoting enterprise upgrading. Long-term financial assets crowd out the funds needed for production activities and thus inhibit enterprise upgrading, resulting in an inverted U-shaped relationship between financial assets and enterprise upgrading. Mechanism testing revealed that risk-taking capacity and earnings persistence are important ways in which financial assets affect enterprise upgrading. In addition, the impact of financial assets on enterprise upgrading differs for different types of financial assets. The financial asset significantly impacts the upgrading of over-indebtedness, non-state-owned, and high financing constraints enterprises. This study enriches the research literature on financial assets and enterprise upgrading and provides new micro evidence for understanding the impact of financial assets on the enterprise upgrading of listed companies.