The horizon problem in owner-manager agency relationships can be reduced by:
A) paying a bonus linked to the dividend pay-out ratio.
B) encouraging managers to invest in higher risk projects.
C) linking management's bonus to profits.
D) aligning manager's interests with the longer-term interests of shareholders through share-based remuneration schemes.

Question

Quizplus · Accepted Answer

The horizon problem arises when managers focus on short-term goals rather than the long-term interests of shareholders. One way to align manager's interests with shareholders is through share-based remuneration schemes. By giving managers ownership in the company, they have an incentive to work towards the long-term success of the company.

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