*2.3. Why Dynamic Panel Data?*

The traditional agency framework was reexamined outside the jurisdiction of the Anglo-Saxon market, especially in the emerging markets. The development in the corporate governance literature has suggested that the governance variables plays an important part (endogenously) in the value maximization process of the shareholders (Nguyen et al. 2015). The agency cost can affect firm performance. Still, due to the link between the agency cost and firm governance variables, we cannot be sure about the relationship, e.g., studies have shown that state ownership is positively related to the presence of agency cost (Wei et al. 2005). Therefore, a dynamic model is required to cater to the endogeneity problem, specifically in the case of China, where investor protection is weak. Additionally, the motivation for using a dynamic panel model in the corporate governance literature is derived from the recent calls by Zhou et al. (2014) and Nguyen et al. (2015).
