A Tribute by Nobel Laureate Eugene F. Fama
Eugene F. Fama, Nobel Laureate, pays homage to the distinguished economist Michael C. Jensen, who recently passed away. Fama reflects on Jensen’s extraordinary career, highlighting his roles as a pioneering researcher and the founder of the Journal of Financial Economics and SSRN.
Michael Jensen passed away on Tuesday, April 2, 2024, at the age of 84.
Academic Excellence and Transformational Research
In the late 1960s, Michael was an outstanding student in the University of Chicago’s Graduate School of Business Ph.D. program, now known as the Booth School. He belonged to an exceptional group of students who played pivotal roles in transforming academic finance into a rigorous scientific discipline.
Michael’s research placed him among the elite in finance and economics. His 1976 paper with William Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” published in the Journal of Financial Economics, is a cornerstone in agency theory, with 130,867 Google citations. This seminal work set a high standard for future research in the field.
Groundbreaking Contributions and Enduring Impact
Michael’s collaboration with Fama led to two influential papers on agency theory published in the 1983 Journal of Law and Economics. “Separation of Ownership and Control” is particularly notable, with 53,207 citations. This work is just one of many that underscore Michael’s significant contributions to finance and economics.
Early in his career, Michael made substantial empirical contributions. His Ph.D. thesis, “The Performance of Mutual Funds in the Period 1945-1964,” published in the Journal of Finance in 1968, utilized the Sharpe-Lintner asset pricing model to assess mutual fund performance, concluding that passive investment strategies often outperform actively managed ones. This conclusion has stood the test of time through numerous subsequent studies.
Michael also coauthored a seminal 1968 paper in the International Economic Review, “The Adjustment of Stock Prices to New Information,” which is recognized as the first event study. This pioneering work laid the foundation for many event studies in finance and accounting, cementing Michael’s legacy in empirical research.
Founding Influential Platforms
Beyond his personal research, Michael’s foresight led to two major contributions that have had a lasting impact on the field. He founded the Journal of Financial Economics in 1974, providing much-needed competition to the Journal of Finance and elevating the standards of academic publishing in finance.
Michael also anticipated the transformative potential of the internet for disseminating research. He established the Social Science Research Network (SSRN), supporting it both financially and through his unwavering belief in its success. Today, SSRN is a vital platform for the distribution of new research across the social sciences.
A Personal Reflection
To Fama and many others, Michael was not only an intellectual peer but also a dear friend. His presence and contributions will be profoundly missed.