Decision Rights: Who Gives the Green Light?
Four steps to ensure that the right decisions are made by the right people.
Content: Article | Authors: Michael C. Jensen, Peter Jacobs | Source: Harvard Business School (HBS) Working Knowledge | Subject: Organizational Behavior
Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them
In many ways, Murphy and Jensen’s 1990 paper on CEO pay may have been one of the most influential finance papers written in the past 15 years. It showed not only how CEOs were being paid, but also stressed the importance of incentive based (pay for performance) pay. As I wrote in the summary of that paper for my classes: This is a classic work … [ Read more ]
Content: Article | Authors: Eric G. Wruck, Kevin J. Murphy, Michael C. Jensen | Source: Social Science Research Network (SSRN) | Subjects: Corporate Governance, Finance
Agency Costs of Overvalued Equity
Jensen’s 1986 Free Cash flow paper showed that too much cash is bad. Now he shows that a stock price can be too high. Why? “A stock price that is overvalued is caused when investors have overly optimistic expectations. Thus, if the investors were to learn the truth, the stock price would fall. This creates an incentive to hide information from investors. … [ Read more ]
Content: Article | Author: Michael C. Jensen | Source: Social Science Research Network (SSRN) | Subjects: Ethics, Finance
Why Corporate Budgeting Needs To Be Fixed
Not to mince words, but corporate budgeting is a joke, argues HBS professor emeritus Michael C. Jensen in this Harvard Business Review excerpt. The problem isn’t with the budget process—it’s when budget targets are used to determine compensation.
Content: Article | Author: Michael C. Jensen | Source: Harvard Business School (HBS) Working Knowledge | Subjects: Finance, Management