What is the main way in which firms follow the owner- control argument and distribute a high proportion of earnings, and so reduce the principal- agent problem?

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Quizplus · Accepted Answer

By having to ask for investment funds, managers are subject to scrutiny and must justify their plans to the owners of the firm. This aligns the interests of the managers with those of the owners and helps to reduce the principal-agent problem. A high dividend policy does not necessarily indicate that the firm is following the owner-control argument, as it could simply be the result of a desire to provide income to shareholders. The day-to-day running of the firm may be delegated to managers, but this does not necessarily ensure that they will act in the best interests of the owners.

What Is the Main Way in Which Firms Follow the Owner-