Michael Jensen
Encyclopedia
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
.
, 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 appointement 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, he is a board member of the European Corporate Governance Institute. Jensen is also the founder and editor of the Journal of Financial Economics
.
The Jensen Prize
in corporate finance
and organizations research is named in his honor.
, 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 behaviour, 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 Jensen and Murphy (1990) published in the Harvard Business Review 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).
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
working in the area of financial economics
Financial economics
Financial Economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment"....
. He is currently the managing director in charge of organizational strategy at Monitor Group
Monitor Group
Monitor Group is a global management consulting firm headquartered in Cambridge, Massachusetts, United States and with 27 offices in 26 major cities around the world. It provides strategy consultation services to the senior management of organizations and governments...
, a strategy consulting firm, and the Jesse Isidor Straus Professor of Business Administration, Emeritus
Emeritus
Emeritus is a post-positive adjective that is used to designate a retired professor, bishop, or other professional or as a title. The female equivalent emerita is also sometimes used.-History:...
at Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
.
Biography
Michael Jensen was born on November 30, 1939 in Rochester, MinnesotaRochester, Minnesota
Rochester is a city in the U.S. state of Minnesota and is the county seat of Olmsted County. Located on both banks of the Zumbro River, The city has a population of 106,769 according to the 2010 United States Census, making it Minnesota's third-largest city and the largest outside of the...
, United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. He received his A.B. in Economics from Macalester College
Macalester College
Macalester College is a private, coeducational liberal arts college located in Saint Paul, Minnesota. It was founded in 1874 as a Presbyterian-affiliated but nonsectarian college. Its first class entered September 15, 1885. The college is located on a campus in a historic residential neighborhood...
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
Merton Miller
Merton Howard Miller was the co-author of the Modigliani-Miller theorem which proposed the irrelevance of debt-equity structure. He shared the Nobel Memorial Prize in Economic Sciences in 1990, along with Harry Markowitz and William Sharpe...
(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
William E. Simon Graduate School of Business Administration
The University of Rochester Simon Graduate School of Business is the business school located on the University's River Campus in Rochester, New York. It was renamed after William E. Simon , the 63rd United States Secretary of the Treasury, in 1986...
of the University of Rochester
University of Rochester
The University of Rochester is a private, nonsectarian, research university in Rochester, New York, United States. The university grants undergraduate and graduate degrees, including doctoral and professional degrees. The university has six schools and various interdisciplinary programs.The...
. 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
Harvard Business School
Harvard Business School is the graduate business school of Harvard University in Boston, Massachusetts, United States and is widely recognized as one of the top business schools in the world. The school offers the world's largest full-time MBA program, doctoral programs, and many executive...
, keeping a double appointement 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
Monitor Group
Monitor Group is a global management consulting firm headquartered in Cambridge, Massachusetts, United States and with 27 offices in 26 major cities around the world. It provides strategy consultation services to the senior management of organizations and governments...
.
He was also a visiting scholar at the University of Bern (1976), Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
(1984–85, before joining the faculty) and the Tuck School of Business
Tuck School of Business
The Amos Tuck School of Business Administration is the graduate business school of Dartmouth College in Hanover, New Hampshire, in the United States...
at Dartmouth College
Dartmouth College
Dartmouth College is a private, Ivy League university in Hanover, New Hampshire, United States. The institution comprises a liberal arts college, Dartmouth Medical School, Thayer School of Engineering, and the Tuck School of Business, as well as 19 graduate programs in the arts and sciences...
(2001–02). In 1992 he held the chair of president of the American Finance Association
American Finance Association
The American Finance Association is an academic organization whose focus is the study and promotion of knowledge of financial economics. It was formed in 1939...
, he became a member of the American Academy of Arts and Sciences
American Academy of Arts and Sciences
The American Academy of Arts and Sciences is an independent policy research center that conducts multidisciplinary studies of complex and emerging problems. The Academy’s elected members are leaders in the academic disciplines, the arts, business, and public affairs.James Bowdoin, John Adams, and...
in 1996 and, since 2002, he is a board member of the European Corporate Governance Institute. Jensen is also the founder and editor of the Journal of Financial Economics
Journal of Financial Economics
The Journal of Financial Economics or JFE, is a peer-reviewed academic journal covering the theory of financial economics. Together with the Journal of Finance and the Review of Financial Studies, it is considered to be among the top three finance journal. The editor is Bill Schwert...
.
The Jensen Prize
Jensen Prize
The Jensen Prize is an annual prize given to authors with the best corporate finance and organizations research papers published in the Journal of Financial Economics...
in corporate finance
Corporate finance
Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value while managing the firm's financial risks...
and organizations research is named in his honor.
Research
Prof. Jensen has played an important role in the academic discussion of the capital asset pricing modelCapital asset pricing model
In finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk...
, of stock options policy, and of corporate governance
Corporate governance
Corporate governance is a number of processes, customs, policies, laws, and institutions which have impact on the way a company is controlled...
, developing a method of measuring fund manager performance, the so-called Jensen's alpha
Jensen's alpha
In finance, Jensen's alpha is used to determine the abnormal return of a security or portfolio of securities over the theoretical expected return....
.
Jensen's best-known work is the 1976 paper he co-authored with William H. Meckling, "Theory of the firm: Managerial behaviour, 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
Ronald Coase
Ronald Harry Coase is a British-born, American-based economist and the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School. After studying with the University of London External Programme in 1927–29, Coase entered the London School of Economics, where he took...
), the paper laid the foundation for the widespread use of stock options as executive compensation tools.
It was Jensen and Murphy (1990) published in the Harvard Business Review 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).
External links
- Personal page at the Harvard Business School website
- Author page at the SSRN (Social Science Research Network) website