Small and medium-sized enterprises (SMEs) have rapidly expanded their market share and explored technological capability through internationalization. However, after a certain critical point, the overall costs originating from internalization may outweigh the benefits. In this study, we hypothesize that there exists an inverted U-shaped relationship between internationalization and innovation. We also posit that the organizational slacks, financial slack and human resource slack, moderate this relationship. By empirically testing the panel data of 95 Korean SMEs, our results demonstrate that SMEs’ internationalization and innovation have an inverted U-shaped relationship. Our findings also suggest that the financial slack of SMEs negatively moderates the relationship between internationalization and innovation, whereas HR slack is not significant. This study provides vital theoretical implications that the benefit of internationalization diminishes after a certain critical point, and the financial slack weakens the inverted U-shaped relationship.