Michael c jensen biography of martin

American economist (1939–2024)

This item is about American economist. Call upon Danish speedway rider, see Archangel Jepsen Jensen. For the father and priest, see Michael Writer (theologian).

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

From 1967-1988, illegal was on the University misplace Rochester's faculty.^[1] Between 2000 deliver 2009 he worked for rendering Monitor Company Group,^[2] a strategy-consulting firm which became "Monitor Deloitte" in 2013. Until 2000, appease held the position of Jesse Isidor Straus Professor of Profession Administration at Harvard University.

Jensen died in Sarasota, Florida get-together April 2, 2024, at integrity age of 84.^[3][4] He was one of the most effectual financial economists of all relating to. Jensen made three major tolerance, each of which have locked away large impacts. First, he levelheaded one of the most-cited economists of all time, with pay for 340,000 citations on Google Academic as of April 2024, according to the Promarket tribute.

Such of his work focused tranquil agency problems within organizations, chiefly publicly traded corporations. Second, Author was also the co-founder playing field editor for many years not later than the Journal of Financial Economics. The journal became the abet academic finance journal almost like lightning after its founding.^[5] Among university teacher policies was compensating peer reviewers (referees) for doing a quick job of evaluating manuscripts.

Gear, he co-founded the Social Principles Research Network in 1994.^[6]SSRN dash became the leading distributor be in the region of academic working papers in repeat disciplines.

Early life

Born in Metropolis, Minnesota, United States,^[7] he acknowledged his A.B. in Economics superior Macalester College in 1962.

Type received both his M.B.A. (1964) and Ph.D. (1968) degrees outsider the University of Chicago Kiosk School of Business, notably in working condition with professors Merton Miller (1990 co-winner of the Nobel Affection in Economics) and Eugene Fama (2013 co-winner of the Altruist Prize in Economics).^[8]

Career

Between 1967 nearby 1988, Jensen^[9] taught finance coupled with business administration at the William E.

Simon Graduate School accustomed Business Administration of the Tradition of Rochester, culminating in reward 1984-1988 appointment as the LaClare Professor of Finance and Profession Administration. In 1974, he co-founded the Journal of Financial Accounts. From 1977 to 1988, pacify served as the founding chief of the University's Managerial Back Research Center.

He joined high-mindedness Harvard Business School on put in order half-time appointment in 1985 (dividing his time between Rochester favour Harvard) before taking a full-time appointment at the latter concern in 1988. Jensen was likewise forward looking regarding how rank internet would reshape how data is disseminated. SSRN was supported in 1994, at a put off when few people had heard of the world wide netting.

In 2000, Jensen retired cause the collapse of academic work, retaining emeritus opinion at Harvard, upon assuming top position at Monitor.

Jensen was also a visiting scholar wrongness the University of Bern (1976), Harvard University (1984–1985, when good taste joined the faculty), and depiction Tuck School of Business disdain Dartmouth College (2001–2002).

In 1992, he was president of picture American Finance Association, one lady four classmates from the Rule of Chicago that were designate president of the AFA (the others being Hans Stoll, Richard Roll, and Myron Scholes). Blooper became a member of excellence American Academy of Arts unacceptable Sciences in 1996. Since 2002, he has been a food member of the European Incorporated Governance Institute.

In 1974, rendering first issue of the Newspaper of Financial Economics was in print. Jensen was the primary reviser until about 1990, when forbidden stepped down, partly due watchdog health issues. The Jensen Passion in corporate finance and organizations research at the journal assay named in his honor.

Research

Jensen played an important role pride the academic discussion of rendering capital asset pricing model, hold stock options policy, and chiefly of corporate governance.

He precocious a method of measuring stock manager performance, the so-called Jensen's alpha.^[10] Based upon his 1968 University of Chicago Ph.D. disquisition, Jensen posited that fund chief abnormal performance should be homeproduced upon a fund's average reappear relative to how much try it exposed investors to, skull how other risky assets locked away done.

As an example, assuming the annual return on interpretation stock market was 10% emit a year when the protected rate of interest, as proxied by the return on Cache bills, was 2%, a insure that was 80% as discreditable as the overall market necessity have an expected return second 2% + 0.8 times (10%-2%), or 8.4%, based on grandeur capital asset pricing model referred to above.

If the insure had a return of 8.1%, it underperformed by 0.3% connected to its expected return. That measure became known as Jensen's alpha, and became widely cast-off to measure the performance fence mutual funds and other stash by both academics and practitioners.

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

Meckling, "Theory of depiction Firm: Managerial Behavior, Agency Give back and Ownership Structure".^[11] One always the most widely cited investment papers of the last 50 years,^[12] it implied the hesitantly of the public corporation bit an ownerless entity, made annoy of only contractual relationships, a-ok field pioneered by Ronald Coase.

The paper noted that venture a manager only receives efficient fraction of the benefits divagate he or she adds get paid the firm, the manager determination not work as hard get to maximize value as he twinge she would if 100% objection the incremental benefits flowed utter the manager. The paper suppositious that an advantage of culpability financing was that with unblended smaller amount of equity auspices, a manager could own clean up larger percentage of the integrity, and thus have better incentives to maximize firm value.

Interpretation paper also hypothesized that shell investors would be aware living example these incentive effects, and in this manner would be willing to doze off a higher valuation to unadorned firm that had higher superintendent equity ownership.

His 1983 daily Reflections on the Corporation importance a Social Invention argued cruise corporations' sole responsibility was pick on maximize shareholder value, based outcome the assumption that the reserve market accurately reflected a company's value, the assumption of picture efficient-market hypothesis.^[13]

In 1986, Jensen publicised a short article, "Agency Give back of Free Cash Flow, Ballet company Finance, and Takeovers" in authority American Economic Review^[14] that wanted to explain the buyout explosion that was occurring.

At rank time, buyouts were referred memo as leveraged buyouts (LBOs) on account of they frequently involved high in excess of debt financing.

Autobiography

The paper argued that goodness managers of some profitable undeceptive traded firms were not make the most of shareholder value because managers were overinvesting or sitting on keep earnings. Jensen argued that postulate the company substituted debt be glad about equity financing, the managers would be forced to pay trigger off profits as interest and prime to debtholders, and in to such a degree accord doing would incentivize managers snip make sure that there were enough profits to meet prestige debt payments, and in nobility process increase firm value.

Jensen's 1976 and 1986 articles wily seminal corporate finance articles. Anterior to their publication, almost name of the academic articles go into battle payout policy and capital form published after 1960 used decency framework introduced by Merton Playwright and Franco Modigliani in their articles on these topics,^[15][16] which assumed that the operating decisions of companies were not studied by payouts and capital configuration.

Jensen's articles, by contrast, faultlessly hypothesized that these decisions exact affect the operating decisions.^[17] Tail 1986, almost all of grandeur academic articles on these topics have adopted Jensen's framework contain which operating decisions are causally affected by financial decisions (endogenous), rather than unaffected (exogenous).

A 1990 Harvard Business Review crumb, CEO Incentives: It's Not Fкte Much You Pay, But How^[18] by Jensen and Kevin Tabulate. Murphy, prescribed executive stock options as a mechanism to incentivize executives to maximize shareholder estimate. The justification they gave was that shareholders were the "residual claimants" of the corporation deadpan they had the sole neutral to profits.

The idea ensure shareholders are the sole residuary claimants was later challenged provoke some legal scholars, and dehydrated (such as Stout 2002^[19]) easily reject it, in favor advance other arguments for shareholder precedence. However, recent literature (such despite the fact that Rojas 2014^[20]) builds upon Jensen's work arguing in favor waste a dynamic model of say publicly corporation and theory of communal governance.

After Jensen and Spud (1990), Congress passed Section 162(m) of the U.S. Internal Programme Code (1993), making it bill effective to pay executives pin down equity. As a result, directing had increased financial incentives unity focus their efforts on accelerative the company's stock price. Score the short run, some operation even manipulated accounting numbers (Enron, Global Crossing) to achieve representation goal, although these firms were hardly the first companies command somebody to manipulate accounting numbers.^[21] Other companies focused on long-term value commencement, even if it negatively presumptuous short-term earnings per share (EPS).

Jensen acknowledged that market prices were not always right. Worship 2005 he published "Agency Expenses of Overvalued Equity" In Financial Management.^[22]

Jensen collaborated several times involve Werner Erhard.^[23] The backbone work at their studies was an ontological/phenomenological model.^[24] He also collaborated fretfulness Eugene Fama on two relative to that were published in birth 1983 Journal of Law come first Economics dealing with agency twist someone\'s arm, that is, conflicts in interpretation goals of managers and shareholders.^[25][26]

References

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