Charlie Charoenwong

Investment Options, Assets in Place, and the Risk of Stocks

This study views the firms future investment opportunities as operating options and examines the effect of growth opportunities on the firms systematic risk using contingent claims analysis. The study predicts that the greater the portion of a stocks market value accounted for by the firms growth opportunities, the higher the systematic risk. Overall, our empirical results strongly support this hypothesis. Furthermore, including firm size in empirical analysis does not significantly change the relationship between the stock beta and growth variables. Thus, we conclude that the effect of growth on stock risk is independent of firm size.

Property-Liability Insurance Company Market Pullout Announcements and Shareholder Wealth

This study presents an analysis of the wealth effects of property-liability insurance company market pullout announcements on the shareholders of both the withdrawing firms and their major competitors. The results of the study indicate that market withdrawals are positively interpreted by financial market participants, as the share prices of the withdrawing companies experience statistically significant risk-adjusted mean price increases of about one percent. On average, there is little evidence that market withdrawals adversely affect major competitors of the withdrawing insurance companies.

Price Movers on the Stock Exchange of Thailand: Evidence from a Fully Automated Order‐Driven Market

This study examines which trade sizes move stock prices on the Stock Exchange of Thailand (SET), a pure limit order market, over two distinct market conditions of bull and bear. Using intraday data, the study finds that large-sized trades (i.e., those larger than the 75th percentile) account for a disproportionately large impact on changes in traded and quoted prices. The finding remains even after it has been subjected to a battery of robustness checks. In contrast, the results of studies conducted in the United States show that informed traders employ trade sizes falling between the 40th and 95th percentiles (Barclay and Warner, 1993; Chakravarty, 2001). Our results support the hypothesis that informed traders in a pure limit order market, such as the SET, where there are no market makers, also use larger-size trades than those employed by informed traders in the United States.

Asymmetric Information and Conglomerate Discount: Evidence from Spinoffs

The existing literature argues that diversified firms may be undervalued due to the information asymmetry between a firms management and the market. Splitting the firms divisions into multiple business components is thought to facilitate the market valuation of each component more accurately. We investigate the information hypothesis from corporate spinoffs from 1981 through 2004. We use the post-spinoff data to reconstruct the diversified firm, assess the improvement in value at the combined firm level, and relate the value improvement to the change in the level of information asymmetry. We find that, prior to the spinoff, the sample firms have significantly higher levels of information asymmetry than their industry- and size-matched peers and that the level of information asymmetry decreases to a certain extent following the spinoff. We also find that the sample firms are valued at a substantial discount before the spinoff and that the valuation discount is eliminated after the completion of the spinoff. The matching firms, however, do not trade at a significant discount either pre- or post-spinoff. This is consistent with the view that only undervalued firms divest. More importantly, we find that the change in excess value around the spinoff is significantly and negatively related to the change in the level of information asymmetry. We conclude that information asymmetry is at least partly responsible for the diversification discount.