Home > Research > Publications & Outputs > Performance periods in CEO performance-based eq...

Links

Text available via DOI:

View graph of relations

Performance periods in CEO performance-based equity awards: theory and evidence

Research output: Contribution to journalJournal article

Published

Standard

Performance periods in CEO performance-based equity awards : theory and evidence. / Evans III, John Harry; Gao, Zhan; Hwang, Yuhchang; Wu, Wan-Ting.

In: The Accounting Review, Vol. 93, No. 2, 01.03.2018, p. 161-190.

Research output: Contribution to journalJournal article

Harvard

Evans III, JH, Gao, Z, Hwang, Y & Wu, W-T 2018, 'Performance periods in CEO performance-based equity awards: theory and evidence', The Accounting Review, vol. 93, no. 2, pp. 161-190. https://doi.org/10.2308/accr-51839

APA

Evans III, J. H., Gao, Z., Hwang, Y., & Wu, W-T. (2018). Performance periods in CEO performance-based equity awards: theory and evidence. The Accounting Review, 93(2), 161-190. https://doi.org/10.2308/accr-51839

Vancouver

Evans III JH, Gao Z, Hwang Y, Wu W-T. Performance periods in CEO performance-based equity awards: theory and evidence. The Accounting Review. 2018 Mar 1;93(2):161-190. https://doi.org/10.2308/accr-51839

Author

Evans III, John Harry ; Gao, Zhan ; Hwang, Yuhchang ; Wu, Wan-Ting. / Performance periods in CEO performance-based equity awards : theory and evidence. In: The Accounting Review. 2018 ; Vol. 93, No. 2. pp. 161-190.

Bibtex

@article{c4cfa0a6638840a8a3dd864adcc8e13d,
title = "Performance periods in CEO performance-based equity awards: theory and evidence",
abstract = "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.",
keywords = "performance period, sorting, performance vesting, CEO compensation, corporate governance, CEO turnover",
author = "{Evans III}, {John Harry} and Zhan Gao and Yuhchang Hwang and Wan-Ting Wu",
year = "2018",
month = mar,
day = "1",
doi = "10.2308/accr-51839",
language = "English",
volume = "93",
pages = "161--190",
journal = "The Accounting Review",
issn = "0001-4826",
publisher = "American Accounting Association",
number = "2",

}

RIS

TY - JOUR

T1 - Performance periods in CEO performance-based equity awards

T2 - theory and evidence

AU - Evans III, John Harry

AU - Gao, Zhan

AU - Hwang, Yuhchang

AU - Wu, Wan-Ting

PY - 2018/3/1

Y1 - 2018/3/1

N2 - 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.

AB - 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.

KW - performance period

KW - sorting

KW - performance vesting

KW - CEO compensation

KW - corporate governance

KW - CEO turnover

U2 - 10.2308/accr-51839

DO - 10.2308/accr-51839

M3 - Journal article

VL - 93

SP - 161

EP - 190

JO - The Accounting Review

JF - The Accounting Review

SN - 0001-4826

IS - 2

ER -