The horizon problem in owner-manager agency relationships can be reduced by:
A) implementing sound corporate governance.
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 interest of the owner and the manager as the manager becomes a shareholder and benefits from the increase in the value of the company's shares. This reduces the horizon problem and ensures that the manager works towards the long-term growth and success of the company. Choices A, B, and C may also help reduce the horizon problem to some extent, but they are not as effective as paying a portion of managerial remuneration as shares.

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