Extant research finds inconclusive evidence about the CEO horizon problem. One possibility is that compensation committees design CEO compensation in a way that discourages retiring CEOs from opportunistic earnings management and R&D reduction. However, compensation committees dominated by co-opted directors may not be as effective as those with fewer co-opted directors in mitigating the CEO horizon problem, because directors co-opted by the CEO tend to bias their decisions in favor of the CEO. I find that compensation committees dominated by co-opted directors are associated with higher CEO compensation packages. I document R&D reduction and accruals management in firms with retiring CEOs and compensation committees dominated by co-opted directors, and find that R&D reduction and income-increasing accruals are less discouraged by compensation committees dominated by co-opted directors when deciding CEO compensation. I also examine the effect of boards of directors and compensation committee characteristics on CEO compensation and on mitigating the CEO horizon problem. I find that CEO compensation positively associates with CEO power, director independence, and the percentage of busy directors, and negatively associates with board of directors and committee size and director ownership. Moreover, I find that retiring CEOs are more likely to reduce R&D expenditures when CEOs have more power, and director tenure is longer; retiring CEOs in firms with large boards of directors and compensation committees are less likely to manage accruals.

O presente estudo investigou se o uso do lucro econômico em contratos de incentivo contingentes ao desempenho motiva os indivíduos a agir de forma mais consistente com os objetivos de longo prazo da empresa quando existe o problema do horizonte. Para tanto, foi utilizado um experimento de fator único entre sujeitos, pré-pós tratamento com grupo de controle, cuja única tarefa dos participantes era investir recursos em ações de longo prazo visando maximizar o fluxo de caixa futuro de uma loja de prestação de serviço. O estudo envolveu a participação de 76 estudantes de graduação, divididos em três grupos, e documentou que, em comparação ao grupo de controle (recompensado com base numa remuneração fixa) e a um segundo grupo de tratamento (recompensado com base numa remuneração variável vinculada ao lucro contábil contemporâneo), os participantes submetidos ao contrato que recompensava com base no lucro econômico agiram de forma mais congruente em relação ao objetivo estabelecido, dedicando mais esforço na realização da tarefa e melhorando o desempenho nas suas decisões de investimentos. Consistente com as predições da teoria da agência, o principal resultado dessa investigação sugere que o lucro econômico ajuda a mitigar o problema de miopia gerencial, indicando que incorporá-lo aos contratos motiva os agentes a agir de forma mais consistente com os objetivos de longo prazo da empresa, mesmo na presença do problema do horizonte. Além disso, a pesquisa documentou novas evidências da inadequação da formulação de contratos de incentivo baseados em medidas de desempenho distorcidas, tal como o lucro contábil. / The present study investigated whether the use of economic profit in performance-contingent incentive contracts motivates individuals to act more consistently with the long-term goals of the firm when the horizon problem is present. An experimental design was conducted. The experiment used a single factor between-subjects and pre-post treatment with a control group. The experimental task was to invest resources in long-term actions with the goal of maximizing the future cash flow of a photocopy store. The study involved the participation of 76 undergraduate students, divided into three groups, and documented that participants rewarded by contracts based on economic profit acted more congruently with the goal set by devoting more effort to accomplish the task and improving performance in their investment decisions when compared to the control group (rewarded on the basis of a fixed wage) and to the second treatment group (rewarded on the basis of a contingent contemporaneous accounting profit incentive contract). The present study\'s key findings are consistent with the predictions of the agency theory and suggest that the economic profit helps to mitigate the problem of managerial myopia. These study findings also indicate that the economic profit in incentive contracts motivates agents to act more consistently with the firm\'s long-term goals even in the presence of the horizon problem. In addition, the present research documented new evidences of the inadequacy of incentive contracts based on distorted performance measures such as accounting profit.

Agricultural research and development (R&D) investment is becoming an increasingly important policy issue as food prices push upwards and food security problems emerge. An important source of agricultural R&D funding is from producer check-offs, which are increasingly being used to fund applied agricultural research such as disease management, genetic improvement, and weed control. Existing studies of producer-funded agricultural R&D indicate that there are high private and social rates of return to agricultural R&D investment by farmers, and thus that farmers are under investing in R&D. The focus of this thesis is at the producer level. This study examines one of the factors -- the horizon problem -- behind the apparent disincentive for farmers to invest in producer-funded R&D activities. It has been argued that given the long period of time over which the benefits of R&D investment occur, the increasing age of the farm population implies that the horizon problem could be indeed an important factor in producer underinvestment. Contrary to this widely acknowledged argument, this study shows the horizon problem is likely not a factor affecting farmers R&D investment decisions. Two models are developed to examine the horizon problem. The first model consists of a framework for determining the marginal internal rate of return of investing in R&D. Specifically, the model calculates the internal rate of return -- i.e., IRRh -- associated with the farmers' planning horizon and compares this to the internal rate of return -- i.e., IRR bar-- associated with the benefit horizon of the R&D. The impact of the horizon problem is determined by examining the difference between IRRh and IRR bar. The results of the horizon problem model show how that, contrary to what some authors have argued, the horizon problem is likely not a disincentive for R&D investment, unless the time horizon of farmers is very short. Given that the membership horizon for the average Canadian producer is 15 to 20 years, it is expected that the horizon problem is not an issue for Canadian producers. Furthermore, the analysis assumes farmers only are concerned with profit maximization. However, farmers may also consider other factors when making R&D investment decisions, such as future generations of agricultural producers and environment issues. The results of this study show that, even under the assumption of profit maximization, the horizon problem is not an issue for Canadian farmers, let alone in a more realistic model implemented by including factors other than profit. The results of the horizon problem model also show that the impact of the horizon problem is not affected by land tenure relationships. The second model consists of a multi-region, multi-product trade model that is used to examine the impact of Canadian pea R&D funding on consumers and producers in Canada and in various countries around the world that produce and consume pulses. To address the underinvestment issue, it is important to understand the question of who benefits from the research that is undertaken, and who bears the cost. Given that Canada is the largest pea exporter in the world an increase in R&D investment can be expected to have a significant impact on international trade and overseas producers and consumers. The simulation results from the second model illustrate that with increased pea R&D investment, Canadian producers, as well as consumers in all regions, are better off as a result of the R&D investment, while overseas producers are worse off. The results of the sensitivity analysis show that a pivotal supply shift associated with an increased levy, combined with a parallel supply curve shift due to increases in the knowledge stock, does affect the IRR in the large country versus the small country case. This result differs from the result that occurs when there is a parallel shift in supply at both the levy and R&D stages, indicating that it is important to understand the interaction between the manner in which R&D is funded, the way in which R&D affects supply and the trade status of a country. The results of the sensitivity analysis also indicate that the IRR to Canadian producers depends critically on how large an impact pea R&D has on the production of other crops (e.g., wheat and canola). The larger is this impact -- i.e., the more that wheat and canola production falls as a result of higher yields/lower costs of pea production -- the smaller is the IRR. The results also indicate that the elasticities of demand for peas and lentils in the importing countries do not have an impact on the IRR in the case where Canada is a large country exporter for peas only; however, they do have an impact on IRR in the case where Canada is a large exporter for both peas and lentils. In all cases, the more elastic is the demand, the higher is the IRR.

O presente estudo investigou se o uso do lucro econômico em contratos de incentivo contingentes ao desempenho motiva os indivíduos a agir de forma mais consistente com os objetivos de longo prazo da empresa quando existe o problema do horizonte. Para tanto, foi utilizado um experimento de fator único entre sujeitos, pré-pós tratamento com grupo de controle, cuja única tarefa dos participantes era investir recursos em ações de longo prazo visando maximizar o fluxo de caixa futuro de uma loja de prestação de serviço. O estudo envolveu a participação de 76 estudantes de graduação, divididos em três grupos, e documentou que, em comparação ao grupo de controle (recompensado com base numa remuneração fixa) e a um segundo grupo de tratamento (recompensado com base numa remuneração variável vinculada ao lucro contábil contemporâneo), os participantes submetidos ao contrato que recompensava com base no lucro econômico agiram de forma mais congruente em relação ao objetivo estabelecido, dedicando mais esforço na realização da tarefa e melhorando o desempenho nas suas decisões de investimentos. Consistente com as predições da teoria da agência, o principal resultado dessa investigação sugere que o lucro econômico ajuda a mitigar o problema de miopia gerencial, indicando que incorporá-lo aos contratos motiva os agentes a agir de forma mais consistente com os objetivos de longo prazo da empresa, mesmo na presença do problema do horizonte. Além disso, a pesquisa documentou novas evidências da inadequação da formulação de contratos de incentivo baseados em medidas de desempenho distorcidas, tal como o lucro contábil. / The present study investigated whether the use of economic profit in performance-contingent incentive contracts motivates individuals to act more consistently with the long-term goals of the firm when the horizon problem is present. An experimental design was conducted. The experiment used a single factor between-subjects and pre-post treatment with a control group. The experimental task was to invest resources in long-term actions with the goal of maximizing the future cash flow of a photocopy store. The study involved the participation of 76 undergraduate students, divided into three groups, and documented that participants rewarded by contracts based on economic profit acted more congruently with the goal set by devoting more effort to accomplish the task and improving performance in their investment decisions when compared to the control group (rewarded on the basis of a fixed wage) and to the second treatment group (rewarded on the basis of a contingent contemporaneous accounting profit incentive contract). The present study\'s key findings are consistent with the predictions of the agency theory and suggest that the economic profit helps to mitigate the problem of managerial myopia. These study findings also indicate that the economic profit in incentive contracts motivates agents to act more consistently with the firm\'s long-term goals even in the presence of the horizon problem. In addition, the present research documented new evidences of the inadequacy of incentive contracts based on distorted performance measures such as accounting profit.