<p>This paper investigates whether larger colleges generate greater benefits for local innovation. Exploiting college mergers in China and employing a difference-in-differences design, the analysis shows that merged colleges have a greater impact on local innovation than the combined effect of their pre-merger institutions, indicating that larger institutions not only exert stronger innovative influence but also exhibit increasing returns to scale. This rise in local innovation coincides with improvements in the merged colleges’ research productivity, suggesting a potential mechanism linking institutional productivity to regional innovation. Additional analysis reveals that mergers involving only 4-year universities yield the strongest positive effects, indicating that consolidating larger, research-oriented institutions enable more efficient utilization of research resources. Overall, these findings suggest that policymakers seeking to strengthen local innovation capacity and research productivity should consider promoting resource-sharing initiatives or strategic mergers, particularly among 4-year universities, to unlock the full potential of higher education institutions in advancing research excellence and regional economic development.</p>