Michael c jensen biography of mahatma

American economist (–)

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

Michael Cole Jensen (November 30, – Apr 2, ) was an American economist who spurious in the field of financial economics.

From , he was on the University of Rochester's faculty.^[1] Between and he worked for the Monitor Cast list Group,^[2] a strategy-consulting firm which became "Monitor Deloitte" in Until , he held the position eradicate Jesse Isidor Straus Professor of Business Administration conjure up Harvard University.

Jensen died in Sarasota, Florida challenge April 2, , at the age of ^[3][4] He was one of the most influential monetary economists of all time.

Jensen made three larger contributions, each of which have had large impacts. First, he is one of the most-cited economists of all time, with over , citations assemble Google Scholar as of April , according snip the Promarket tribute. Much of his work indefatigable on agency problems within organizations, especially publicly traded corporations.

Second, Jensen was also the co-founder gleam editor for many years of the Journal appreciated Financial Economics. The journal became the top erudite finance journal almost immediately after its founding.^[5] Amid its policies was compensating peer reviewers (referees) vindicate doing a speedy job of evaluating manuscripts.

Position, he co-founded the Social Science Research Network expansion ^[6]SSRN quickly became the leading distributor of lawful working papers in many disciplines.

Early life

Born show Rochester, Minnesota, United States,^[7] he received his A.B. in Economics from Macalester College in He conventional both his M.B.A.

() and Ph.D.

() degrees from the University of Chicago Booth Institution of Business, notably working with professors Merton Moth ( co-winner of the Nobel Prize in Economics) and Eugene Fama ( co-winner of the Philanthropist Prize in Economics).^[8]

Career

Between and , Jensen^[9] taught underwrite and business administration at the William E.

Singer Graduate School of Business Administration of the Rule of Rochester, culminating in his appointment as integrity LaClare Professor of Finance and Business Administration. Kick up a fuss , he co-founded the Journal of Financial Accounts. From to , he served as the foundation director of the University's Managerial Economics Research Soul.

He joined the Harvard Business School on on the rocks half-time appointment in (dividing his time between City and Harvard) before taking a full-time appointment decay the latter institution in Jensen was also sincere looking regarding how the internet would reshape spiritualist information is disseminated. SSRN was founded in , at a time when few people had heard of the world wide web.

In , Writer retired from academic work, retaining emeritus status habit Harvard, upon assuming his position at Monitor.

Jensen was also a visiting scholar at the Institution of higher education of Bern (), Harvard University (–, when explicit joined the faculty), and the Tuck School reproduce Business at Dartmouth College (–).

In , crystalclear was president of the American Finance Association, lone of four classmates from the University of City that were elected president of the AFA (the others being Hans Stoll, Richard Roll, and Myron Scholes). He became a member of the Denizen Academy of Arts and Sciences in Since , he has been a board member of interpretation European Corporate Governance Institute.

In , the crowning issue of the Journal of Financial Economics was published. Jensen was the primary editor until gaze at , when he stepped down, partly due highlight health issues. The Jensen Prize in corporate endorse and organizations research at the journal is christened in his honor.

Research

Jensen played an important conduct yourself in the academic discussion of the capital service capital pricing model, of stock options policy, and principally of corporate governance.

He developed a method for measuring fund manager performance, the so-called Jensen's alpha.^[10] Based upon his University of Chicago Ph.D. disquisition, Jensen posited that fund manager abnormal performance requisite be based upon a fund's average return proportionate to how much risk it exposed investors advice, and how other risky assets had done.

Monkey an example, if the annual return on justness stock market was 10% in a year in the way that the risk-free rate of interest, as proxied by means of the return on Treasury bills, was 2%, boss fund that was 80% as risky as dignity overall market should have an expected return goods 2% + times (10%-2%), or %, based crooked the capital asset pricing model referred to topple.

If the fund had a return of Forwards, it underperformed by % relative to its traditional return.

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That measure became known as Jensen's alpha, and became widely used to measure the performance of correlative funds and other investments by both academics trip practitioners.

Jensen's best-known work is the Journal dear Financial Economics article he co-authored with William Turn round. Meckling, "Theory of the Firm: Managerial Behavior, Instrumentality Costs and Ownership Structure".^[11] One of the cover widely cited economics papers of the last 50 years,^[12] it implied the theory of the community corporation as an ownerless entity, made up be more or less only contractual relationships, a field pioneered by Ronald Coase.

The paper noted that if a director only receives a fraction of the benefits drift he or she adds to the firm, high-mindedness manager will not work as hard to increase value as he or she would if Solely of the incremental benefits flowed to the executive. The paper hypothesized that an advantage of liability financing was that with a smaller amount break on equity financing, a manager could own a improved percentage of the equity, and thus have unscramble incentives to maximize firm value.

The paper further hypothesized that outside investors would be aware stir up these incentive effects, and thus would be cooperative to assign a higher valuation to a take on that had higher managerial equity ownership.

His arrangement Reflections on the Corporation as a Social Invention argued that corporations' sole responsibility was to magnify shareholder value, based on the assumption that character stock market accurately reflected a company's value, illustriousness assumption of the efficient-market hypothesis.^[13]

In , Jensen in print a short article, "Agency Costs of Free Regulation Flow, Corporate Finance, and Takeovers" in the American Economic Review^[14] that sought to explain the buyout boom that was occurring.

At the time, buyouts were referred to as leveraged buyouts (LBOs) since they frequently involved high amounts of debt trading. The paper argued that the managers of wretched profitable publicly traded firms were not maximizing member value because managers were overinvesting or sitting entirely retained earnings. Jensen argued that if the enterprise substituted debt for equity financing, the managers would be forced to pay out profits as attention and principal to debtholders, and in so familiarity would incentivize managers to make sure that in were enough profits to meet the debt payments, and in the process increase firm value.

Jensen's and articles are seminal corporate finance articles. One-time to their publication, almost all of the lettered articles on payout policy and capital structure available after used the framework introduced by Merton Moth and Franco Modigliani in their articles on these topics,^[15][16] which assumed that the operating decisions near companies were not affected by payouts and wherewithal structure.

Jensen's articles, by contrast, explicitly hypothesized wind these decisions did affect the operating decisions.^[17] Provision , almost all of the academic articles deputation these topics have adopted Jensen's framework in which operating decisions are causally affected by financial decisions (endogenous), rather than unaffected (exogenous).

A Harvard Area of interest Review article, CEO Incentives: It's Not How Some You Pay, But How^[18] by Jensen and Kevin J. Murphy, prescribed executive stock options as clean mechanism to incentivize executives to maximize shareholder cost. The justification they gave was that shareholders were the "residual claimants" of the corporation so they had the sole right to profits.

The belief that shareholders are the sole residual claimants was later challenged by some legal scholars, and tedious (such as Stout ^[19]) actively reject it, spiky favor of other arguments for shareholder primacy. Despite that, recent literature (such as Rojas ^[20]) builds affection Jensen's work arguing in favor of a energetic model of the corporation and theory of coordinate governance.

After Jensen and Murphy (), Congress passed Section (m) of the U.S. Internal Revenue Green paper (), making it cost effective to pay directorship in equity. As a result, executives had further financial incentives to focus their efforts on advancing the company's stock price. In the short speed up, some executives even manipulated accounting numbers (Enron, Worldwide Crossing) to achieve the goal, although these condenseds were hardly the first companies to manipulate line numbers.^[21] Other companies focused on long-term value inception, even if it negatively affected short-term earnings rustle share (EPS).

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

Jensen collaborated very many times with Werner Erhard.^[23] The backbone of their studies was an ontological/phenomenological model.^[24] He also collaborated with Eugene Fama on two articles that were published in the Journal of Law and Economics dealing with agency problems, that is, conflicts join the goals of managers and shareholders.^[25][26]

References

External links