Performance Periods in CEO Performance-Based Equity Awards: Theory and Evidence

• 成果类型: Article
• 署名作者: Evans, John Harry, III; Gao, Zhan; Hwang, Yuhchang; Wu, Wan-Ting
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); University of Pittsburgh; Lancaster University; China Europe International Business School; University of Massachusetts System; University of Massachusetts Boston
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51839
• 发表日期: 2018
• 页码: 161-190
• 关键词: skill-weights approach; corporate governance; probit models; turnover; STOCK; COMPENSATION; firm; pay; INFORMATION; INVESTMENT

摘要

This paper examines the length of time over which CEO performance is evaluated (the ''performance period'') in CEO performance-based equity awards (PBEAs). Departing from the primary emphasis of agency theory on moral hazard problems, we develop a model in which short performance periods are instrumental in sorting CEO talents. The model predicts that short performance periods are preferred when CEOs have low expected productivity or valuable alternative employment opportunities, and when firms face high operating uncertainty or high dispersion of managerial productivity. We find empirical support for these predictions in a sample of S&P 1500 industrial firms granting PBEAs to CEOs. We also document that CEO turnover is higher for underperforming CEOs with shorter performance periods, validating the sorting role of performance periods.