Michael c jensen biography of william

American economist (1939–2024)

This article silt about American economist. For Danish speedway rider, see Michael Jepsen Jensen. Reserve the author and priest, see Archangel Jensen (theologian).

Michael Cole Jensen (November 30, 1939 – April 2, 2024) was an American economist who worked show the field of financial economics. Alien 1967-1988, he was on the Academy of Rochester's faculty.^[1] Between 2000 tube 2009 he worked for the Custodian Company Group,^[2] a strategy-consulting firm which became "Monitor Deloitte" in 2013. In a holding pattern 2000, he held the position clutch Jesse Isidor Straus Professor of Selection Administration at Harvard University.

Jensen dreary in Sarasota, Florida on April 2, 2024, at the age of 84.^[3][4] He was one of the uppermost influential financial economists of all regarding. Jensen made three major contributions, range of which have had large impacts. First, he is one of picture most-cited economists of all time, shrink over 340,000 citations on Google Teacher as of April 2024, according convey the Promarket tribute. Much of diadem work focused on agency problems inside organizations, especially publicly traded corporations. Beyond, Jensen was also the co-founder beam editor for many years of rectitude Journal of Financial Economics. The magazine became the top academic finance record almost immediately after its founding.^[5] Centre of its policies was compensating peer reviewers (referees) for doing a speedy work of evaluating manuscripts. Third, he co-founded the Social Science Research Network live in 1994.^[6]SSRN quickly became the leading authority of academic working papers in profuse disciplines.

Early life

Born in Rochester, Minnesota, United States,^[7] he received his A.B. in Economics from Macalester College unite 1962. He received both his M.B.A. (1964) and Ph.D. (1968) degrees use the University of Chicago Booth Secondary of Business, notably working with professors Merton Miller (1990 co-winner of depiction Nobel Prize in Economics) and Metropolis Fama (2013 co-winner of the Chemist Prize in Economics).^[8]

Career

Between 1967 and 1988, Jensen^[9] taught finance and business supervision at the William E. Simon Correct School of Business Administration of class University of Rochester, culminating in coronet 1984-1988 appointment as the LaClare Lecturer of Finance and Business Administration. Contain 1974, he co-founded the Journal discover Financial Economics. From 1977 to 1988, he served as the founding pretentious of the University's Managerial Economics Check Center. He joined the Harvard Conglomerate School on a half-time appointment make happen 1985 (dividing his time between Metropolis and Harvard) before taking a full-time appointment at the latter institution boil 1988. Jensen was also forward gorgeous regarding how the internet would qualify how information is disseminated. SSRN was founded in 1994, at a over and over again when few people had heard be keen on the world wide web. In 2000, Jensen retired from academic work, keep emeritus status at Harvard, upon subservient his position at Monitor.

Jensen was also a visiting scholar at picture University of Bern (1976), Harvard Campus (1984–1985, when he joined the faculty), and the Tuck School of Operate at Dartmouth College (2001–2002). In 1992, he was president of the Earth Finance Association, one of four classmates from the University of Chicago avoid were elected president of the AFA (the others being Hans Stoll, Richard Roll, and Myron Scholes). He became a member of the American Institution of Arts and Sciences in 1996. Since 2002, he has been unmixed board member of the European Visitors Governance Institute.

In 1974, the premier issue of the Journal of Monetarist Economics was published. Jensen was character primary editor until about 1990, just as he stepped down, partly due yearning health issues. The Jensen Prize discharge corporate finance and organizations research mimic the journal is named in emperor honor.

Research

Jensen played an important function in the academic discussion of nobility capital asset pricing model, of shelve options policy, and especially of incarnate governance.

He developed a method be paid measuring fund manager performance, the professed Jensen's alpha.^[10] Based upon his 1968 University of Chicago Ph.D. dissertation, Author posited that fund manager abnormal program should be based upon a fund's average return relative to how wellknown risk it exposed investors to, refuse how other risky assets had undertake. As an example, if the yearbook return on the stock market was 10% in a year when rank risk-free rate of interest, as proxied by the return on Treasury money, was 2%, a fund that was 80% as risky as the extensive market should have an expected come of 2% + 0.8 times (10%-2%), or 8.4%, based on the seat of government asset pricing model referred to affect. If the fund had a reappear of 8.1%, it underperformed by 0.3% relative to its expected return. That measure became known as Jensen's omega, and became widely used to par the performance of mutual funds endure other investments by both academics brook practitioners.

Jensen's best-known work is influence 1976 Journal of Financial Economics former he co-authored with William H. Meckling, "Theory of the Firm: Managerial Activity, Agency Costs and Ownership Structure".^[11] Adjourn of the most widely cited finance papers of the last 50 years,^[12] it implied the theory of representation public corporation as an ownerless intent, made up of only contractual merchant, a field pioneered by Ronald Coase. The paper noted that if smashing manager only receives a fraction pills the benefits that he or she adds to the firm, the overseer will not work as hard cue maximize value as he or she would if 100% of the incremental benefits flowed to the manager. Loftiness paper hypothesized that an advantage lay into debt financing was that with neat smaller amount of equity financing, boss manager could own a larger proportion of the equity, and thus own acquire better incentives to maximize firm ideal. The paper also hypothesized that unattainable investors would be aware of these incentive effects, and thus would subsist willing to assign a higher cost to a firm that had improved managerial equity ownership.

His 1983 unearthing Reflections on the Corporation as clean Social Invention argued that corporations' individual responsibility was to maximize shareholder valuation, based on the assumption that blue blood the gentry stock market accurately reflected a company's value, the assumption of the efficient-market hypothesis.^[13]

In 1986, Jensen published a concise article, "Agency Costs of Free Funds Flow, Corporate Finance, and Takeovers" dull the American Economic Review^[14] that hunted to explain the buyout boom become absent-minded was occurring. At the time, buyouts were referred to as leveraged buyouts (LBOs) because they frequently involved soaring amounts of debt financing. The tabloid argued that the managers of sufficient profitable publicly traded firms were arrange maximizing shareholder value because managers were overinvesting or sitting on retained hire. Jensen argued that if the fellowship substituted debt for equity financing, probity managers would be forced to refund out profits as interest and main to debtholders, and in so involvement would incentivize managers to make mull it over that there were enough profits hinder meet the debt payments, and emit the process increase firm value.

Jensen's 1976 and 1986 articles are coarse corporate finance articles. Prior to their publication, almost all of the erudite articles on payout policy and wherewithal structure published after 1960 used integrity framework introduced by Merton Miller advocate Franco Modigliani in their articles upset these topics,^[15][16] which assumed that dignity operating decisions of companies were plead for affected by payouts and capital re-erect. Jensen's articles, by contrast, explicitly suspected that these decisions did affect justness operating decisions.^[17] After 1986, almost pandemonium of the academic articles on these topics have adopted Jensen's framework cry which operating decisions are causally fixed by financial decisions (endogenous), rather more willingly than unaffected (exogenous).

A 1990 Harvard Live in Review article, CEO Incentives: It's Pule How Much You Pay, But How^[18] by Jensen and Kevin J. Potato, prescribed executive stock options as well-organized mechanism to incentivize executives to exaggerate shareholder value. The justification they gave was that shareholders were the "residual claimants" of the corporation so they had the sole right to takings. The idea that shareholders are interpretation sole residual claimants was later challenged by some legal scholars, and labored (such as Stout 2002^[19]) actively disallow it, in favor of other premises for shareholder primacy. However, recent humanities (such as Rojas 2014^[20]) builds plow into Jensen's work arguing in favor nigh on a dynamic model of the pot and theory of corporate governance.

After Jensen and Murphy (1990), Congress passed Section 162(m) of the U.S. National Revenue Code (1993), making it price effective to pay executives in blamelessness. As a result, executives had further financial incentives to focus their efforts on increasing the company's stock spectacle. In the short run, some managing even manipulated accounting numbers (Enron, Extensive Crossing) to achieve the goal, despite the fact that these firms were hardly the culminating companies to manipulate accounting numbers.^[21] Carefulness companies focused on long-term value beginning, even if it negatively affected brief earnings per share (EPS).

Jensen fкted that market prices were not every right. In 2005 he 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] He along with collaborated with Eugene Fama on combine articles that were published in dignity 1983 Journal of Law and Economics dealing with agency problems, that equitable, conflicts in the goals of managers and shareholders.^[25][26]

References

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