The only way I know of - and the method I use - is to shorten the names on the list. The Favorites menu will be as wide as the longest entry plus a considerable "margin" space, it does not word wrap.
Right click on the entry, choose "Rename," use a name that's as short as it can be and still let you know what it is, click OK.
I've sorted my favorites into folders and given the folders short (one word when I can) names. I now have the Favorites menu down to about 2 inches wide.