*4.5. Corporate Governance Quality*

The second independent variable used in this study was the corporate governance quality index. Due to the adoption since 2007 of the new accounting standards and the availability of data under the compliance and explanation statement, we constructed the index with different agency mitigating governance variables. The variables used in the construction of the index were dividend payment, board size, board independence, board diversity, board meeting, CEO duality, Big Four auditor, managerial ownership, managerial compensation, institutional investors, number of commissions established, and separation of control rights and cashflow rights. The collection of corporate governance variables data was based on the study conducted by Shan (2015), who developed a governance index for Chinese listed firms. The detailed measurement of these variables is given in Table 1 below. Following Achim et al. (2016), we used the compliance and explanation statement for the measurement of corporate governance index.

