The horizon problem in owner-manager agency relationships can be reduced by:
A) paying a bonus linked to the dividend pay-out ratio.
B) having financial statements audited.
C) linking management's bonus to profits.
D) paying a portion of managerial remuneration as shares.

Question

Quizplus · Accepted Answer

Paying a portion of managerial remuneration as shares aligns the interests of the owners and managers, as it ties the performance of the company directly to the compensation of the managers. This reduces the horizon problem as managers have a long-term incentive to increase the value of the company. Options A, B, and C may be helpful in reducing other agency problems, but they do not directly address the horizon problem.

The Horizon Problem in Owner-Manager Agency Relationships Can Be Reduced