Michael Jensen

Michael Cole Jensen (November 30, 1939 – April 2, 2024) was an American economist who worked in the field of financial economics. From 1967 to 1988, he was on the University of Rochester's faculty.[1] Between 2000 and 2009 he worked for the Monitor Company Group,[2] a strategy-consulting firm which became "Monitor Deloitte" in 2013. Until 2000, he held the position of Jesse Isidor Straus Professor of Business Administration at Harvard University. https://en.wikipedia.org/wiki/Michael_C._Jensen

• Jensen's best-known work is the 1976 Journal of Financial Economics article he co-authored with William Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure".[15] One of the most widely cited economics papers of the last 50 years,[16] it implied the theory of the public corporation as an ownerless entity, made up of only contractual relationships, a field pioneered by Ronald Coase. The paper noted that if a manager only receives a fraction of the benefits that he or she adds to the firm, the manager will not work as hard to maximize value as he or she would if 100% of the incremental benefits flowed to the manager. The paper hypothesized that an advantage of debt financing was that with a smaller amount of equity financing, a manager could own a larger percentage of the equity, and thus have better incentives to maximize firm value (LBO/MBO). The paper also hypothesized that outside investors would be aware of these incentive effects, and thus would be willing to assign a higher valuation to a firm that had higher managerial equity ownership.
• His 1983 paper Reflections on the Corporation as a Social Invention argued that corporations' sole responsibility was to maximize shareholder value, based on the assumption that the stock market accurately reflected a company's value, the assumption of the efficient-market hypothesis.