Trade, Technologies, and the Evolution of Corporate Governance

Do international trade and technological change influence how firms
create incentives for human capital? I present a model that
incorporates agency problems into a framework with firm
heterogeneity and human capital. My model indicates that trade
liberalizations and skill-biased technological change alter the way
how the largest firms in an economy incentivize their managers.
Increases in managerial reservation wages lead to a reduction in
corporate governance investments and a rise in performance
compensation since monitoring managers becomes less efficient.
Using data on CEO compensation and entrenchment opportunities in
public industrial firms in the U.S., I document strong empirical
regularities in support of the model predictions. Firms allow for
more managerial entrenchment and offer larger CEO compensation when
their industries become more open to trade or when production
becomes more I.T. intensive.