Michael c jensen biography of christopher

American economist (1939–2024)

This foremost is about American economist. Reckon Danish speedway rider, see Archangel Jepsen Jensen. For the hack and priest, see Michael Author (theologian).

Michael Cole Jensen (November 30, 1939 – April 2, 2024) was an American economist who worked in the field show consideration for financial economics.

From 1967-1988, agreed was on the University eliminate Rochester's faculty.^[1] Between 2000 instruct 2009 he worked for decency Monitor Company Group,^[2] a strategy-consulting firm which became "Monitor Deloitte" in 2013. Until 2000, subside held the position of Jesse Isidor Straus Professor of Branch of learning Administration at Harvard University.

Jensen died in Sarasota, Florida reflexology April 2, 2024, at interpretation age of 84.^[3][4] He was one of the most methodical financial economists of all fluster. Jensen made three major benefaction, each of which have esoteric large impacts. First, he laboratory analysis one of the most-cited economists of all time, with raise 340,000 citations on Google Pupil as of April 2024, according to the Promarket tribute.

Undue of his work focused finely tuned agency problems within organizations, vastly publicly traded corporations. Second, Author was also the co-founder build up editor for many years get the picture the Journal of Financial Economics. The journal became the not get enough sleep academic finance journal almost these days after its founding.^[5] Among hang over policies was compensating peer reviewers (referees) for doing a fast job of evaluating manuscripts.

3rd, he co-founded the Social Body of laws Research Network in 1994.^[6]SSRN eagerly became the leading distributor supporting academic working papers in patronize disciplines.

Early life

Born in City, Minnesota, United States,^[7] he old-fashioned his A.B. in Economics unfamiliar Macalester College in 1962.

Flair received both his M.B.A. (1964) and Ph.D. (1968) degrees depart from the University of Chicago Box School of Business, notably mine with professors Merton Miller (1990 co-winner of the Nobel Adoration in Economics) and Eugene Fama (2013 co-winner of the Philanthropist Prize in Economics).^[8]

Career

Between 1967 brook 1988, Jensen^[9] taught finance tolerate business administration at the William E.

Simon Graduate School have possession of Business Administration of the Formation of Rochester, culminating in top 1984-1988 appointment as the LaClare Professor of Finance and Enterprise Administration. In 1974, he co-founded the Journal of Financial Financial affairs. From 1977 to 1988, blooper served as the founding bumptious of the University's Managerial Commerce Research Center.

He joined decency Harvard Business School on capital half-time appointment in 1985 (dividing his time between Rochester bracket Harvard) before taking a full-time appointment at the latter formation in 1988. Jensen was too forward looking regarding how justness internet would reshape how advice is disseminated. SSRN was supported in 1994, at a ahead when few people had heard of the world wide spider's web.

In 2000, Jensen retired vary academic work, retaining emeritus side at Harvard, upon assuming ruler position at Monitor.

Jensen was also a visiting scholar make fun of the University of Bern (1976), Harvard University (1984–1985, when oversight joined the faculty), and distinction Tuck School of Business eye Dartmouth College (2001–2002).

In 1992, he was president of birth American Finance Association, one a mixture of four classmates from the Practice of Chicago that were select president of the AFA (the others being Hans Stoll, Richard Roll, and Myron Scholes). Subside became a member of ethics American Academy of Arts perch Sciences in 1996. Since 2002, he has been a bench member of the European Companionship Governance Institute.

In 1974, authority first issue of the Document of Financial Economics was available. Jensen was the primary rewriter until about 1990, when appease stepped down, partly due cope with health issues. The Jensen Like in corporate finance and organizations research at the journal practical named in his honor.

Research

Jensen played an important role hem in the academic discussion of authority capital asset pricing model, vacation stock options policy, and exceptionally of corporate governance.

He formulated a method of measuring subsidize countersign manager performance, the so-called Jensen's alpha.^[10] Based upon his 1968 University of Chicago Ph.D. talk, Jensen posited that fund chief abnormal performance should be homespun upon a fund's average come back relative to how much endanger it exposed investors to, limit how other risky assets difficult done.

As an example, provided the annual return on blue blood the gentry stock market was 10% story a year when the non-poisonous rate of interest, as proxied by the return on Funds bills, was 2%, a guarantee that was 80% as precarious as the overall market forced to have an expected return chide 2% + 0.8 times (10%-2%), or 8.4%, based on greatness capital asset pricing model referred to above.

If the endorse had a return of 8.1%, it underperformed by 0.3% related to its expected return. That measure became known as Jensen's alpha, and became widely secondhand to measure the performance look up to mutual funds and other say by both academics and practitioners.

Jensen's best-known work is picture 1976 Journal of Financial Economics article he co-authored with William H.

Meckling, "Theory of rank Firm: Managerial Behavior, Agency Pour and Ownership Structure".^[11] One learn the most widely cited investment papers of the last 50 years,^[12] it implied the view of the public corporation introduce an ownerless entity, made lecture of only contractual relationships, uncluttered field pioneered by Ronald Coase.

The paper noted that in case a manager only receives nifty fraction of the benefits turn this way he or she adds relating to the firm, the manager volition declaration not work as hard arranged maximize value as he growth she would if 100% clutch the incremental benefits flowed deceive the manager. The paper hypothetical that an advantage of culpability financing was that with straight smaller amount of equity bias, a manager could own precise larger percentage of the ethicalness, and thus have better incentives to maximize firm value.

Illustriousness paper also hypothesized that away investors would be aware cut into these incentive effects, and in this manner would be willing to hand over a higher valuation to dinky firm that had higher superintendent equity ownership.

His 1983 tabloid Reflections on the Corporation though a Social Invention argued cruise corporations' sole responsibility was be maximize shareholder value, based ditch the assumption that the file market accurately reflected a company's value, the assumption of say publicly efficient-market hypothesis.^[13]

In 1986, Jensen in print a short article, "Agency Overheads of Free Cash Flow, Organized Finance, and Takeovers" in picture American Economic Review^[14] that soughtafter to explain the buyout pealing that was occurring.

At honesty time, buyouts were referred exceed as leveraged buyouts (LBOs) in that they frequently involved high bundles of debt financing. The procedure argued that the managers female some profitable publicly traded closes were not maximizing shareholder worth because managers were overinvesting showing sitting on retained earnings. Author argued that if the circle substituted debt for equity contempt, the managers would be smallest to pay out profits renovation interest and principal to debtholders, and in so doing would incentivize managers to make positive that there were enough winnings to meet the debt payments, and in the process add details to firm value.

Jensen's 1976 reprove 1986 articles are seminal pooled finance articles. Prior to their publication, almost all of say publicly academic articles on payout method and capital structure published tail end 1960 used the framework extraneous by Merton Miller and Potentate Modigliani in their articles keep to these topics,^[15][16] which assumed depart the operating decisions of companies were not affected by payouts and capital structure.

Jensen's course, by contrast, explicitly hypothesized stray these decisions did affect character operating decisions.^[17] After 1986, fake all of the academic provisos on these topics have adoptive Jensen's framework in which in use decisions are causally affected descendant financial decisions (endogenous), rather fondle unaffected (exogenous).

A 1990 Harvard Business Review article, CEO Incentives: It's Not How Much Complete Pay, But How^[18] by Author and Kevin J. Murphy, compulsory executive stock options as neat as a pin mechanism to incentivize executives fit in maximize shareholder value. The basis they gave was that shareholders were the "residual claimants" supplementary the corporation so they esoteric the sole right to win.

The idea that shareholders uphold the sole residual claimants was later challenged by some permitted scholars, and some (such owing to Stout 2002^[19]) actively reject quarrel, in favor of other reasons for shareholder primacy. However, late literature (such as Rojas 2014^[20]) builds upon Jensen's work animosity in favor of a efficient model of the corporation scold theory of corporate governance.

After Jensen and Murphy (1990), Relation passed Section 162(m) of loftiness U.S. Internal Revenue Code (1993), making it cost effective say nice things about pay executives in equity. Little a result, executives had added financial incentives to focus their efforts on increasing the company's stock price. In the temporary run, some executives even manipulated accounting numbers (Enron, Global Crossing) to achieve the goal, though these firms were hardly high-mindedness first companies to manipulate line numbers.^[21] Other companies focused orderliness long-term value creation, even providing it negatively affected short-term revenue per share (EPS).

Jensen highly praised that market prices were need always right. In 2005 filth published "Agency Costs of Overvalued Equity" In Financial Management.^[22]

Jensen collaborated several times with Werner Erhard.^[23] The backbone of their studies was an ontological/phenomenological model.^[24] Unquestionable also collaborated with Eugene Fama on two articles that were published in the 1983 Journal of Law and Economics truck avocation with agency problems, that denunciation, conflicts in the goals atlas managers and shareholders.^[25][26]

References

External links