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.

This paper investigates the validity and usefulness of “hybrid” valuation models. We recast the model in Ohlson and Johannesson (2016) as a hybrid of the Dividend Discount Model and an earnings-based price multiple model, and develop a new hybrid model that generalizes the Residual Income Valuation Model. After validating the theoretical properties of these models' unique parameters, we assess the usefulness of the hybrid models in two applications. In application one, we find that intrinsic values from the hybrid models are more accurate than those from common discounted models or price multiple models. These improvements are attributable to the hybrid models' ability to incorporate stock price and more realistic assumptions about growth. In application two, we find that the implied cost of equity from the hybrid models better captures systematic risks and key idiosyncratic risks, and captures expected returns. These results demonstrate the validity and usefulness of hybrid valuation models. JEL Classifications: G12; G14; G17; G31; M41. Data Availability: The data used are publicly available from the sources cited in the text.