**1. Introduction**

Opportunistic managers, rather than maximizing the shareholder's wealth, tend to misuse the organizational resources for their own benefit. A good set of governance practices and ownership structures can mitigate the conflict of interest between the principles and the agents, hence enhancing the firm value. The purpose of this paper is to investigate the effect of corporate governance quality and ownership structure on the relationship between agency cost and firm performance. This is one of the few studies to explore the relationship between agency costs and firm performance in a dynamic modeling approach. Specifically, this study aims to address the following research questions: (1) Does corporate governance quality mitigates the relationship between agency cost and firm performance? (2) How do ownership concentrations affect the relationship between agency cost and firm performance? (3) How do state and non-state companies moderate the relationship between agency cost and firm performance?

Data is extracted of 2248 Chinese A-listed companies for the period 2008–2016. Using both fixed effects and dynamic panel generalized methods of moment estimation, the results show that agency cost is negatively related to firm performance. At the same time, corporate governance and ownership concentration enhances firm performance. When corporate governance and ownership concentration are taken as a moderating variable, we find a positive impact on the agency–performance relationship. We also studied the effect of ownership type on the association between agency cost and firm performance. Non-state ownership positively moderates the relationship between agency cost and firm performance. In contrast, the agency cost keeps its negative sign when the state ownership is taken as a moderating variable. Our conclusions are supported by taking alternative measures of independent variables for robustness.
