Associate Professor, Finance
- Co-director, Scotiabank Digital Banking Lab
- Tangerine Chair in Finance
Michael joined the Finance Group at the Ivey Business School in 2011 after two decades working in international financial markets, both in the private and public sectors.
Michael began his career in investment banking and trading working between 1990 and 1998 in New York, London, and Zurich with Credit Suisse and RBC Dominion Securities. During this period, he obtained the Chartered Financial Analyst (CFA) designation. After completing his Phd at the London School of Economics in 2001, Michael joined the Bank of Canada in Ottawa where he worked in increasingly senior positions in the Financial Markets and International Departments. From 2006 to 2008, he also taught part-time on the Queen's Executive MBA program. From 2008 to 2011, Michael worked for the Bank for International Settlements (BIS) in Basel, Switzerland, where he contributed to the analysis of the global financial crisis, wrote about developments in international financial markets for the BIS Quarterly Review, researched the economic implications of the revised Basel Capital Adequacy Accord (Basel III), and analyzed the results of the 2010 Triennial Global Foreign Exchange survey.
Michael's research focuses on international finance, corporate finance, foreign exchange markets and all aspects of banking. His academic work has appeared in the Review of Financial Studies, Journal of Banking and Finance, Financial Management, Journal of Financial Stability, Journal of Applied Corporate Finance, and International Finance. His work targeting practitioners and the public has appearing in CFA Magazine, Bank of Canada Review, BIS Quarterly Review, Policy Options and Central Banking. He has been an active speaker at both academic and industry events and a regular contributor to Canadian Investment Review. He has travelled extensively, and speaks English, French and German.
- Investment Banking
- Raising Capital
- BComm Hons, Queen's
- MSc, DPhil - LSE
- Chartered Financial Analyst - CFA
Recent Refereed Articles
2015, "Political bargaining and multinational bank bailouts", Journal of International Business Studies, February/March 46(2): 206 - 222.
Abstract: This article examines the role of political bargaining and state institutions in explaining variation in state support to multinational banks (MNBs). International business theory predicts that multinational enterprises will engage in political activities to gain a competitive advantage over rivals. I hypothesize that MNBs with greater bargaining power and favorable institutions received state capital injections on more attractive terms than foreign rivals. I test this hypothesis by studying the October 2008 state recapitalizations of MNBs by the UK, France, Germany, the United States, and Switzerland. I measure the relative attractiveness of state bailouts by comparing the bank stock price reactions when the bailouts were announced. The stock prices of MNBs receiving more favorable state support outperformed foreign rivals, reflecting the competitive advantage gained. States imposed more punitive terms on banks when political and legal institutions were more favorable and MNBs were unable to form a coalition. States that are highly dependent on banks and where state bailouts were large relative to GDP were also more punitive. These findings highlight the importance of political behavior as a tool of strategy, and the need for coordination on banking policy across states to reduce moral hazard.
Link(s) to publication:
King, M.R., Osler, C., Rime, D.,
2013, "The Market Microstructure Approach to Foreign Exchange: Looking Back and Looking Forward", Journal of International Money and Finance, November 38: 95 - 119.
Abstract: Research on foreign exchange market microstructure stresses the importance of order flow, heterogeneity among agents, and private information as crucial determinants of short-run exchange rate dynamics. Microstructure researchers have produced empirically-driven models that fit the data surprisingly well. But FX markets are evolving rapidly in response to new electronic trading technologies. Transparency has risen, trading costs have tumbled, and transaction speed has accelerated as new players have entered the market and existing players have modified their behavior. These changes will have profound effects on exchange rate dynamics. Looking forward, we highlight fundamental yet unanswered questions on the nature of private information, the impact on market liquidity, and the changing process of price discovery. We also outline potential microstructure explanations for long-standing exchange rate puzzles.
Link(s) to publication:
2013, "The Basel III Net Stable Funding Ratio and Bank Net Interest Margins", Journal of Banking & Finance, November 37(11): 4144 - 4156.
Abstract: The Net Stable Funding Ratio (NSFR) is a new Basel III liquidity requirement designed to limit funding risk arising from maturity mismatches between bank assets and liabilities. This study explains the NSFR and estimates this ratio for banks in 15 countries. Banks below the ratio need to increase stable sources of funding and to reduce assets requiring funding. The most costeffective strategies to meet the NSFR are to increase holdings of higher-rated securities and to extend the maturity of wholesale funding. These changes reduce net interest margins by 70 to 88 basis points on average, or around 40% of their year-end 2009 values. Universal banks with diversified funding sources and high trading assets are penalized most by the NSFR.
Link(s) to publication:
King, M.R., Sarno, L., Sojli, E.,
2010, "Timing Exchange Rates Using Order Flow: The Case of the Loonie", Journal of Banking & Finance, December 34(12): 2917 - 2928.
Abstract: This paper examines the relation between the Canadian dollar/US dollar (CAD) exchange rate and foreign exchange order flow employing a novel data set on CAD order flow over the period 1994–2005. We investigate empirically the predictive information content and the determinants of order flow. The results suggest that order flow has strong out-of-sample predictive power for CAD returns, yielding significant market timing ability and tangible economic gains in a stylized dynamic asset allocation context. In terms of its determinants, order flow appears to reflect not only the menu of macroeconomic variables typically suggested in the literature but is also closely related to commodity price fluctuations, as expected from a ‘commodity currency’.
2009, "Pre-Bid Run-Ups Ahead of Canadian Takeovers: How Big Is the Problem?", Financial Management, Winter 38(4): 699 - 726.
Abstract: This paper studies the price-volume dynamics ahead of takeover announcements for 399 Canadian firms from 1985 to 2002. I find evidence consistent with insiders trading illegally, creating both abnormal returns (ARs) and abnormal turnover (AT) ahead of the announcement. The rise in AT begins far ahead of the actual announcement, accompanied by ARs in the last five trading days, consistent with more informed trading. Data on disclosed insider trading indicate a sharp increase in volume prior to the takeover announcement, suggesting that insiders make use of private information. This study confirms the importance of AT for triggering an insider trading investigation.
King, M.R., Maier, P.,
2009, "Hedge Funds and Financial Stability: Regulating Prime Brokers Will Mitigate Systemic Risks", Journal of Financial Stability, September 5(3): 283 - 297.
Abstract: We review key characteristics of the hedge fund industry, and identify conditions under which this sector can pose a threat to financial stability. Direct regulation of hedge funds that increases transparency does not appear feasible, may create a moral-hazard problem, and may reduce market liquidity. Indirect regulation by prime brokers and market discipline by creditors, counterparties, and investors have been effective in limiting the risks from the hedge fund sector. To reduce systemic risks, more regulation of prime brokers is warranted to avoid competitive dynamics from undermining counterparty risk management practices.
King, M.R., Segal, D.,
2009, "The Long-Term Effects of Cross-Listing, Investor Recognition, and Ownership Structure on Valuation", Review of Financial Studies, June 22(6): 2393 - 2421.
Abstract: We show that investor recognition and bonding associated with a U.S. cross-listing are distinct effects using a sample of Canadian firms. In contrast to the post-listing decline documented in the literature, we find that cross-listed firms with a single class of shares enjoy a permanent increase in valuation if they attract and maintain investor recognition over time. Valuations of firms that fail to widen their U.S. shareholder base return to pre-listing levels within two years. Cross-listed firms with dual-class shares exhibit a permanent increase in valuation regardless of the level of U.S. investor holdings, consistent with firm-level bonding.
King, M.R., Santor, E.,
2008, "Family Values: Ownership Structure, Performance and Capital Structure of Canadian Firms", Journal of Banking & Finance, November 32(11): 2423 - 2432.
Abstract: This study examines how family ownership affects the performance and capital structure of 613 Canadian firms from 1998 to 2005. In particular, we distinguish the effect of family ownership from the use of control-enhancing mechanisms. We find that freestanding family owned firms with a single share class have similar market performance than other firms based on Tobin’s q ratios, superior accounting performance based on ROA, and higher financial leverage based on debt-to-total assets. By contrast, family owned firms that use dual-class shares have valuations that are lower by 17% on average relative to widely held firms, despite having similar ROA and financial leverage.
King, M.R., Segal, D.,
2008, "Market Segmentation and Equity Valuation: Comparing Canada and the United States", Journal of International Financial Markets, Institutions & Money, July 18(3): 245 - 258.
Abstract: We confirm that Canadian and U.S. equity markets remain segmented and find no evidence that integration is increasing over time. We establish this result by comparing the valuation multiples assigned to the equity of Canadian firms listed exclusively in the home market with a matched sample of U.S. firms over the period 1989–2004. Canadian firms have lower valuations based on multiples of market-to-book, price-to-last 12-month earnings, Tobin's q, and enterprise value-to-EBITDA, despite exhibiting higher sales growth and profitability. Consistent with market segmentation, this Canadian discount is reduced when Canadian firms cross-list on a U.S. stock exchange.
King, M.R., Mittoo, U.,
2007, "What Companies Need to Know About International Cross-Listing", Journal of Applied Corporate Finance, Fall 19(4): 2 - 16.
Abstract: This article addresses four questions about cross-listing by non-U.S. companies on a U.S. stock exchange: Why do companies cross-list? Does a U.S. listing increase firm value? If so, what are the sources of the increased valuation? And finally, how has the Sarbanes-Oxley Act (SOX) affected the value of a U.S. listing? Both managerial surveys and academic research show that companies list in the U.S. to increase visibility and share liquidity, to broaden their shareholder base, to gain access to cheaper financing and reduce the cost of capital, and, in some cases, to implement a global business strategy. Foreign companies also typically cross-list after periods of strong market performance and experience a positive valuation effect around the time of listing, but then underperform the market in the period after the cross-listing. On average, cross-listed companies exhibit higher valuations than their home-market peers, but with significant variation based on firm characteristics: The valuation premiums are larger for smaller companies with higher past sales growth, higher ROAs, and lower financial leverage. In the long run, the companies that show a permanent increase in valuation are those that succeed in expanding their U.S. shareholder base and improving their levels of shareholder protection. Finally, the evidence suggests that SOX, while perhaps deterring some would-be overseas listings, has not seriously eroded the net benefits of a U.S. listing.
2005, "Epistemic Communities and the Diffusion of Ideas: Central Bank Reform in the United Kingdom", West European Politics 28(1): 94 - 123.
Abstract: In May 1997 the incoming Labour government gave the Bank of England operational independence in the setting of interest rates. This reform is puzzling as it was introduced by a party whose roots lie with the trade union movement, and resisted by the Conservatives whose political support comes largely from business, the financial sector and homeowners who stand to benefit most from price stability. Economic ideas are central to explaining the outcome. The Labour Chancellor was convinced by an epistemic community of monetary experts that central bank independence would achieve New Labour's electoral goals. These political incentives were absent for the Conservatives, who preferred to set interest rates strategically to increase their popularity with voters.
2003, "Effective Foreign Exchange Intervention: Matching Strategies with Objectives", International Finance, July 6(2): 249 - 272.
Abstract: Foreign exchange intervention may be undertaken to meet a range of objectives. Empirical work conducted to test the effectiveness of intervention does not adequately address how these objectives may vary over time. As a result, these studies overwhelmingly find that foreign exchange intervention has only a transitory effect on the level or volatility of the exchange rate. These studies suggest strategies that may increase the short-term effectiveness of intervention. Intervention to pursue policy objectives should be announced, supported by macro economic policy, coordinated with other monetary authorities, and conducted ‘against the wind’. Intervention targeting tactical objectives should be conducted secretly, ‘with the wind’, in large size and timed for maximum impact.
King, M.R., Sinclair, T.J.,
2003, "Private Actors and Public Policy: A Requiem for the New Basel Capital Accord", International Political Science Review, July 24(3): 345 - 362.
Abstract: After the Asian crisis of 1997-98, policy-makers invested much energy in designing a new international financial architecture. However, many of the policy proposals that have emerged from think tanks and the multilateral agencies have proven unworkable or politically unpalatable. The debate focuses on state-led initiatives. But the assumption that public policy is by definition an output of public institutions is difficult to sustain in an era of global change. This article considers specialized forms of intelligence gathering and judgment determination which seem increasingly important as sources of governance in this era of financial market volatility: Moody's Investors Service and Standard & Poor's, the major bond rating agencies. More specifically, we examine a proposal of the Basel Committee on Banking Supervision to reform the existing capital adequacy framework by incorporating banks' own internal ratings and external bond ratings from the rating agencies, in order to calculate bank risk-weighted capital requirements. The article identifies a series of negative implications from the use of private rating agencies as a substitute for state-based regulation, premised on the organizational incentives that shape the ratings industry. Cementing these organizational incentives into the emerging financial architecture will, we argue, lead to negative social and economic consequences.
2001, "Who Triggered the Asian Financial Crisis?", Review of International Political Economy 8(3): 438 - 466.
Abstract: The Asian financial crisis was triggered by Japanese commercial banks who reduced their exposure to Asia in response to emerging troubles in Thailand and South Korea. Japanese banks had been severely weakened by the collapse of the real estate and stock market bubble in Japan in 1990. As the largest lenders in Asia and the key creditor in Thailand, Japanese banks signalled the change in sentiment to other foreign commercial banks who also withdrew their loans. These capital outflows triggered a devaluation in Thailand in mid-1997, but not in Korea until late 1997, due to the different exchange rate regimes in these countries. Despite the devaluation and outflow of bank loans, bond investors continued to provide capital to Asian borrowers until November 1997, at spreads which did not reflect the risks involved. By 1998, foreign equity investors were returning to these markets in search of bargains. Rather than rushing to the exits in a herd-like fashion, institutional investors made investment decisions which created off-setting private capital flows. This analysis suggests that more attention should be paid to the incentives facing institutional investors and the design of domestic institutions, rather than to the need for a new financial architecture.
Works in Progress
- Does Bank Trading Activity Deliver Alpha or Just Higher Pay? (with N. Massoud and K. Song).
- Contagion and competition effects in a global industry: Evidence from bank bailouts announced in October 2008 (sole authored).
Honours & Awards
- Bank of Montreal Fellowship, 2011-14
- HBA2 David G. Burgoyne Teaching Award 2013, 2015
- Bank for International Settlements, Basel, Switzerland (2008-2011)
- Bank of Canada, Ottawa, Canada (2001-2008)
- RBC Dominion Securities, London, UK (1997-1998)
- Credit Suisse, Switzerland; USA; UK (1990-1996)
- BUS 4559 Raising Capital in the Financial Markets (HBA2)
- BUS 4574 Mergers, Acquisitions & Restructuring (HBA2)
- BUS 9466 Investment Banking and Capital Markets (MBA)