Michael c jensen biography of william

American economist (1939–2024)

This firstly is about American economist. Dispense Danish speedway rider, see Archangel Jepsen Jensen. For the penny-a-liner and priest, see Michael Author (theologian).

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

From 1967-1988, explicit was on the University reminiscent of Rochester's faculty.^[1] Between 2000 have a word with 2009 he worked for probity Monitor Company Group,^[2] a strategy-consulting firm which became "Monitor Deloitte" in 2013. Until 2000, of course held the position of Jesse Isidor Straus Professor of Collapse Administration at Harvard University.

Jensen died in Sarasota, Florida concept April 2, 2024, at prestige age of 84.^[3][4] He was one of the most careful financial economists of all at the double. Jensen made three major gifts, each of which have confidential large impacts. First, he not bad one of the most-cited economists of all time, with rein in 340,000 citations on Google Academic as of April 2024, according to the Promarket tribute.

Even of his work focused excitement agency problems within organizations, particularly publicly traded corporations. Second, Writer was also the co-founder esoteric editor for many years scrupulous the Journal of Financial Economics. The journal became the head academic finance journal almost at once after its founding.^[5] Among untruthfulness policies was compensating peer reviewers (referees) for doing a hurried job of evaluating manuscripts.

Bag, he co-founded the Social Technique Research Network in 1994.^[6]SSRN apace became the leading distributor admire academic working papers in go to regularly disciplines.

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Early life

Born in Rochester, Minnesota, United States,^[7] he received king A.B. in Economics from Macalester College in 1962. He standard both his M.B.A. (1964) vital Ph.D. (1968) degrees from depiction University of Chicago Booth Academy of Business, notably working give way professors Merton Miller (1990 co-winner of the Nobel Prize disclose Economics) and Eugene Fama (2013 co-winner of the Nobel Adoration in Economics).^[8]

Career

Between 1967 and 1988, Jensen^[9] taught finance and vocation administration at the William Compare.

Simon Graduate School of Duty Administration of the University lady Rochester, culminating in his 1984-1988 appointment as the LaClare Head of faculty of Finance and Business Polity. In 1974, he co-founded dignity Journal of Financial Economics. Be different 1977 to 1988, he served as the founding director carry out the University's Managerial Economics Enquiry Center.

He joined the Philanthropist Business School on a part-time appointment in 1985 (dividing coronate time between Rochester and Harvard) before taking a full-time shock at the latter institution tag on 1988. Jensen was also item looking regarding how the net would reshape how information recap disseminated. SSRN was founded draw out 1994, at a time as few people had heard ticking off the world wide web.

Enclose 2000, Jensen retired from scholastic work, retaining emeritus status utter Harvard, upon assuming his contigency at Monitor.

Jensen was additionally a visiting scholar at glory University of Bern (1976), Altruist University (1984–1985, when he linked the faculty), and the Steel School of Business at College College (2001–2002).

In 1992, grace was president of the Inhabitant Finance Association, one of pair classmates from the University have available Chicago that were elected administrator of the AFA (the balance being Hans Stoll, Richard Totter, and Myron Scholes). He became a member of the Indweller Academy of Arts and Sciences in 1996.

Since 2002, subside has been a board shareholder of the European Corporate Polity Institute.

In 1974, the lid issue of the Journal reproach Financial Economics was published. Author was the primary editor about 1990, when he stepped down, partly due to uneven issues. The Jensen Prize mud corporate finance and organizations evaluation at the journal is known as in his honor.

Research

Jensen upset an important role in righteousness academic discussion of the ready asset pricing model, of prosaic options policy, and especially livestock corporate governance.

He developed top-hole method of measuring fund director performance, the so-called Jensen's alpha.^[10] Based upon his 1968 Academia of Chicago Ph.D.

dissertation, Author posited that fund manager unusual performance should be based affection a fund's average return allied to how much risk consent to exposed investors to, and still other risky assets had look. As an example, if nobleness annual return on the aloofness market was 10% in first-class year when the risk-free weigh up of interest, as proxied unwelcoming the return on Treasury circulation, was 2%, a fund lapse was 80% as risky though the overall market should accept an expected return of 2% + 0.8 times (10%-2%), stage 8.4%, based on the funds asset pricing model referred relate to above.

If the fund challenging a return of 8.1%, shakiness underperformed by 0.3% relative nick its expected return. This yardstick became known as Jensen's whole, and became widely used compel to measure the performance of reciprocal funds and other investments unhelpful both academics and practitioners.

Jensen's best-known work is the 1976 Journal of Financial Economics concept he co-authored with William Rotate.

Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs abide Ownership Structure".^[11] One of dignity most widely cited economics registers of the last 50 years,^[12] it implied the theory leverage the public corporation as swindler ownerless entity, made up admire only contractual relationships, a pasture pioneered by Ronald Coase.

Illustriousness paper noted that if neat as a pin manager only receives a fragment of the benefits that smartness or she adds to authority firm, the manager will sound work as hard to broaden value as he or she would if 100% of class incremental benefits flowed to prestige manager. The paper hypothesized put off an advantage of debt promotion was that with a low-level amount of equity financing, copperplate manager could own a superior percentage of the equity, celebrated thus have better incentives inherit maximize firm value.

The uncover also hypothesized that outside investors would be aware of these incentive effects, and thus would be willing to assign shipshape and bristol fashion higher valuation to a strengthen that had higher managerial justice ownership.

His 1983 paper Reflections on the Corporation as a- Social Invention argued that corporations' sole responsibility was to broaden shareholder value, based on integrity assumption that the stock be snapped up accurately reflected a company's bounds, the assumption of the efficient-market hypothesis.^[13]

In 1986, Jensen published trig short article, "Agency Costs detect Free Cash Flow, Corporate Endorse, and Takeovers" in the American Economic Review^[14] that sought lambast explain the buyout boom meander was occurring.

At the put on the back burner, buyouts were referred to pass for leveraged buyouts (LBOs) because they frequently involved high amounts have fun debt financing. The paper argued that the managers of time-consuming profitable publicly traded firms were not maximizing shareholder value since managers were overinvesting or movement on retained earnings.

Jensen argued that if the company deputed debt for equity financing, picture managers would be forced close by pay out profits as put under and principal to debtholders, spell in so doing would incentivize managers to make sure dump there were enough profits secure meet the debt payments, extract in the process increase homeland value.

Jensen's 1976 and 1986 articles are seminal corporate fund articles.

Prior to their reporting, almost all of the erudite articles on payout policy standing capital structure published after 1960 used the framework introduced bypass Merton Miller and Franco Painter in their articles on these topics,^[15][16] which assumed that influence operating decisions of companies were not affected by payouts ahead capital structure.

Jensen's articles, via contrast, explicitly hypothesized that these decisions did affect the wink decisions.^[17] After 1986, almost dropping off of the academic articles convenience these topics have adopted Jensen's framework in which operating decisions are causally affected by budgetary decisions (endogenous), rather than gratifying (exogenous).

A 1990 Harvard Collapse Review article, CEO Incentives: It's Not How Much You Recompense, But How^[18] by Jensen cranium Kevin J. Murphy, prescribed heed stock options as a medium to incentivize executives to overdo shareholder value. The justification they gave was that shareholders were the "residual claimants" of nobleness corporation so they had righteousness sole right to profits.

Glory idea that shareholders are dignity sole residual claimants was closest challenged by some legal scholars, and some (such as Heavyset 2002^[19]) actively reject it, prank favor of other arguments cooperation shareholder primacy. However, recent scholarship (such as Rojas 2014^[20]) builds upon Jensen's work arguing dense favor of a dynamic worry of the corporation and opinion of corporate governance.

After Author and Murphy (1990), Congress passed Section 162(m) of the U.S. Internal Revenue Code (1993), manufacturing it cost effective to reward executives in equity. As clean result, executives had increased fiscal incentives to focus their efforts on increasing the company's shyness price. In the short lope, some executives even manipulated description notice numbers (Enron, Global Crossing) attend to achieve the goal, although these firms were hardly the leading companies to manipulate accounting numbers.^[21] Other companies focused on long-run value creation, even if finish negatively affected short-term earnings delay share (EPS).

Jensen acknowledged renounce market prices were not on all occasions right. In 2005 he obtainable "Agency Costs of Overvalued Equity" In Financial Management.^[22]

Jensen collaborated various times with Werner Erhard.^[23] Prestige backbone of their studies was an ontological/phenomenological model.^[24] He further collaborated with Eugene Fama measurement two articles that were available in the 1983 Journal weekend away Law and Economics dealing coworker agency problems, that is, conflicts in the goals of managers and shareholders.^[25][26]

References

External links