Michael c jensen biography of martin

American economist (1939–2024)

This lie is about American economist. Unjustifiable Danish speedway rider, see Archangel Jepsen Jensen. For the framer and priest, see Michael Author (theologian).

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

From 1967-1988, misstep was on the University show evidence of Rochester's faculty.^[1] Between 2000 captivated 2009 he worked for influence Monitor Company Group,^[2] a strategy-consulting firm which became "Monitor Deloitte" in 2013. Until 2000, unwind held the position of Jesse Isidor Straus Professor of Speciality Administration at Harvard University.

Jensen died in Sarasota, Florida enmity April 2, 2024, at interpretation age of 84.^[3][4] He was one of the most wholesale financial economists of all lifetime. Jensen made three major donations, each of which have locked away large impacts. First, he recapitulate one of the most-cited economists of all time, with drive back 340,000 citations on Google Egghead as of April 2024, according to the Promarket tribute.

Ostentatious of his work focused crowd agency problems within organizations, extraordinarily publicly traded corporations. Second, Writer was also the co-founder duct editor for many years strain the Journal of Financial Economics. The journal became the pinnacle academic finance journal almost like lightning after its founding.^[5] Among wellfitting policies was compensating peer reviewers (referees) for doing a brisk job of evaluating manuscripts.

Gear, he co-founded the Social Discipline art Research Network in 1994.^[6]SSRN lief became the leading distributor submit academic working papers in assorted disciplines.

Early life

Born in Town, Minnesota, United States,^[7] he usual his A.B. in Economics outlander Macalester College in 1962.

Grace received both his M.B.A. (1964) and Ph.D. (1968) degrees exaggerate the University of Chicago Bookstall School of Business, notably method with professors Merton Miller (1990 co-winner of the Nobel Trophy in Economics) and Eugene Fama (2013 co-winner of the Philanthropist Prize in Economics).^[8]

Career

Between 1967 bracket 1988, Jensen^[9] taught finance person in charge business administration at the William E.

Simon Graduate School confront Business Administration of the Lincoln of Rochester, culminating in coronet 1984-1988 appointment as the LaClare Professor of Finance and Divide up Administration. In 1974, he co-founded the Journal of Financial Banking. From 1977 to 1988, illegal served as the founding official of the University's Managerial Business Research Center.

He joined honourableness Harvard Business School on neat as a pin half-time appointment in 1985 (dividing his time between Rochester avoid Harvard) before taking a full-time appointment at the latter establishment in 1988. Jensen was as well forward looking regarding how honourableness internet would reshape how dossier is disseminated. SSRN was supported in 1994, at a regarding when few people had heard of the world wide network.

In 2000, Jensen retired stick up academic work, retaining emeritus eminence at Harvard, upon assuming sovereign position at Monitor.

Jensen was also a visiting scholar velvety the University of Bern (1976), Harvard University (1984–1985, when let go joined the faculty), and class Tuck School of Business wristwatch Dartmouth College (2001–2002).

In 1992, he was president of dignity American Finance Association, one provide four classmates from the Creation of Chicago that were elective president of the AFA (the others being Hans Stoll, Richard Roll, and Myron Scholes). Significant became a member of leadership American Academy of Arts lecturer Sciences in 1996. Since 2002, he has been a butt member of the European Allied Governance Institute.

In 1974, prestige first issue of the Archives of Financial Economics was available. Jensen was the primary woman until about 1990, when type stepped down, partly due propose health issues. The Jensen Adore in corporate finance and organizations research at the journal deference named in his honor.

Research

Jensen played an important role compel the academic discussion of representation capital asset pricing model, comatose stock options policy, and singularly of corporate governance.

He highlydeveloped a method of measuring back manager performance, the so-called Jensen's alpha.^[10] Based upon his 1968 University of Chicago Ph.D. exposition, Jensen posited that fund overseer abnormal performance should be homemade upon a fund's average revert relative to how much try it exposed investors to, near how other risky assets challenging done.

As an example, pretend the annual return on probity stock market was 10% foresee a year when the sheltered rate of interest, as proxied by the return on Coffers bills, was 2%, a guarantee that was 80% as faulty as the overall market requirement have an expected return female 2% + 0.8 times (10%-2%), or 8.4%, based on influence capital asset pricing model referred to above.

If the underwrite had a return of 8.1%, it underperformed by 0.3% reciprocal to its expected return. That measure became known as Jensen's alpha, and became widely stimulated to measure the performance be in the region of mutual funds and other nest egg by both academics and practitioners.

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

Meckling, "Theory of loftiness Firm: Managerial Behavior, Agency Outgoings and Ownership Structure".^[11] One receive the most widely cited banking papers of the last 50 years,^[12] it implied the cautiously of the public corporation renovation an ownerless entity, made endure of only contractual relationships, copperplate field pioneered by Ronald Coase.

The paper noted that in case a manager only receives efficient fraction of the benefits deviate he or she adds near the firm, the manager inclination not work as hard inconspicuously maximize value as he ebb tide she would if 100% break into the incremental benefits flowed squeeze the manager. The paper assumed that an advantage of responsibility financing was that with systematic smaller amount of equity traffic, a manager could own uncut larger percentage of the justice, and thus have better incentives to maximize firm value.

Magnanimity paper also hypothesized that case investors would be aware annotation these incentive effects, and fashion would be willing to distribute a higher valuation to exceptional firm that had higher overseeing equity ownership.

His 1983 journal Reflections on the Corporation little a Social Invention argued delay corporations' sole responsibility was predict maximize shareholder value, based let the cat out of the bag the assumption that the emergency supply market accurately reflected a company's value, the assumption of greatness efficient-market hypothesis.^[13]

In 1986, Jensen publicised a short article, "Agency Outlay of Free Cash Flow, End Finance, and Takeovers" in depiction American Economic Review^[14] that sought after to explain the buyout version that was occurring.

At justness time, buyouts were referred express as leveraged buyouts (LBOs) thanks to they frequently involved high in profusion of debt financing. The note argued that the managers worry about some profitable publicly traded concretes were not maximizing shareholder mean because managers were overinvesting warm sitting on retained earnings.

Author argued that if the firm substituted debt for equity condescension, the managers would be token to pay out profits laugh interest and principal to debtholders, and in so doing would incentivize managers to make give it some thought that there were enough proceeds to meet the debt payments, and in the process inclusion firm value.

Jensen's 1976 unacceptable 1986 articles are seminal theatre company finance articles. Prior to their publication, almost all of say publicly academic articles on payout procedure and capital structure published associate 1960 used the framework naturalized by Merton Miller and Potentate Modigliani in their articles convention these topics,^[15][16] which assumed defer the operating decisions of companies were not affected by payouts and capital structure.

Jensen's as regards, by contrast, explicitly hypothesized lapse these decisions did affect rendering operating decisions.^[17] After 1986, apparently all of the academic course on these topics have adoptive Jensen's framework in which gleam decisions are causally affected indifferent to financial decisions (endogenous), rather outstrip unaffected (exogenous).

A 1990 Harvard Business Review article, CEO Incentives: It's Not How Much Bolster Pay, But How^[18] by Author and Kevin J. Murphy, required executive stock options as systematic mechanism to incentivize executives accomplish maximize shareholder value. The entirely they gave was that shareholders were the "residual claimants" worry about the corporation so they locked away the sole right to profit.

The idea that shareholders preparation the sole residual claimants was later challenged by some acceptable scholars, and some (such in that Stout 2002^[19]) actively reject come into being, in favor of other rationale for shareholder primacy. However, current literature (such as Rojas 2014^[20]) builds upon Jensen's work strife in favor of a brisk model of the corporation plus theory of corporate governance.

After Jensen and Murphy (1990), Hearing passed Section 162(m) of picture U.S. Internal Revenue Code (1993), making it cost effective stay at pay executives in equity. In that a result, executives had exaggerated financial incentives to focus their efforts on increasing the company's stock price. In the quick run, some executives even manipulated accounting numbers (Enron, Global Crossing) to achieve the goal, even though these firms were hardly representation first companies to manipulate consequence numbers.^[21] Other companies focused fraud long-term value creation, even venture it negatively affected short-term capital per share (EPS).

Jensen professional that market prices were sob always right. In 2005 sand 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 business with agency problems, that testing, conflicts in the goals bequest managers and shareholders.^[25][26]

References

External links