|Michael C. Jensen|
November 30, 1939 |
Rochester, Minnesota, U.S.A.
|Institutions||Monitor Group 2000-
Harvard University 1985-00
University of Rochester 1967-88
|Alma mater||University of Chicago|
|Doctoral advisor||Merton Miller|
|Known for||Financial economics
Michael Cole "Mike" Jensen (born November 30, 1939) is an American economist working in the area of financial economics. He is currently the managing director in charge of organizational strategy at Monitor Group, a strategy consulting firm, and the Jesse Isidor Straus Professor of Business Administration, Emeritus at Harvard University.
Michael Jensen was born on November 30, 1939 in Rochester, Minnesota, United States. He received his A.B. in Economics from Macalester College in 1962. He received both his M.B.A. (1964) and Ph.D. (1968) degrees from the University of Chicago Booth School of Business, notably working with Professor Merton Miller (1990 co-winner of the Nobel Prize in Economics).
Between 1967-1988, Jensen was a professor of finance and business administration at the William E. Simon Graduate School of Business Administration of the University of Rochester. He also founded and managed between 1977-88 the Managerial Economics Research Center at the University of Rochester. Since 1985, Michael Jensen also joined the Harvard Business School, keeping a double appointment until 1988, when he left the University of Rochester remaining only at Harvard. In 2000 Jensen retired from academic work, remaining a Professor Emeritus at Harvard, and joined the consulting firm Monitor Group.
He was also a visiting scholar at the University of Bern (1976), Harvard University (1984–85, before joining the faculty) and the Tuck School of Business at Dartmouth College (2001–02). In 1992 he held the chair of president of the American Finance Association. He became a member of the American Academy of Arts and Sciences in 1996 and, since 2002, has been a board member of the European Corporate Governance Institute. Jensen is also the founder and editor of the Journal of Financial Economics.
Prof. Jensen has played an important role in the academic discussion of the capital asset pricing model, of stock options policy, and of corporate governance, developing a method of measuring fund manager performance, the so-called Jensen's alpha.
Jensen's best-known work is the 1976 paper he co-authored with William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, one of the most widely cited economics papers of the last 30 years. Besides reigniting interest in the theory of the public corporation as an owner-less entity made up of only contractual relationships (a field pioneered by Ronald Coase), the paper laid the foundation for the widespread use of stock options as executive compensation tools.
It was a 1990 Harvard Business Review article CEO Incentives: It's Not How Much You Pay, But How by Jensen and Kevin J. Murphy that prescribed executive stock options in order to maximize shareholder value. The justification they gave was that shareholders were the "residual claimants" of the corporation, meaning that they had the sole right to profits. This idea that shareholders are residual claimants was later rejected by legal scholars (e.g., Stout 2002).
After Jensen and Murphy (1990), Congress passed a law, making it cost effective to pay executives in equity. As a result, executives focused their efforts on increasing stock price. In the short run, many executives manipulated accounting numbers (e.g., Enron, Global Crossing).NYT article 2005 In the long run, executives outsourced labor to reduce costs, then used the cost saving to repurchase stock; thus, increasing their own compensation. Over the last 20 years, stock buybacks total a few trillion.
Notes and references
- Author page at ISI
- CV on his Harvard Business School page
- Section 162(m) of the U.S. Internal Revenue Code (1993)
- Weisbenner (2004), Fenn and Liang (2001)
- "Werner Erhard's Scholarly Papers". Social Science Research Network. Retrieved March 4, 2013.