Governance or Pay to keep CEO shirking at bay?

This thesis investigates the effects of globalization on the agency problems between executive managers and stakeholders. It does so by applying a monopolistic competition model and altering it, such that it explores the substitution effect between corporate governance and executive pay as tools to minimize agency costs. The model is examined in the context of globalization, by incorporating multiple global factors and analyzing how the model responds. In the empirical analysis it finds good indications that trade liberalization has a negative effect on corporate governance and some indications that it has a positive effect on CEO pay. Indicators of international competition show mixed results. Decreasing national tariffs seem to have a negative effect on governance and a positive effect on pay. However, the results when having a comparative advantage as a country in a particular industry or as a company, being part of a highly dynamic industry with high rates of firm failure, mostly give ambiguous results. Somewhat outside of the initial model, indications have been found that an increase in the supply of managers has a deteriorating effect on corporate governance and pay.