Research on Wealth Effect of Asset Reorganization in Tourism Industry: Case Study Based on Holistic Listing of Overseas Chinese Town Group

doi:10.4236/jssm.2012.54041

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Journal of Service Science and Management, 2012, 5, 348-354

http://dx.doi.org/10.4236/jssm.2012.54041 Published Online December 2012 (http://www.SciRP.org/journal/jssm)

Research on Wealth Effect of Asset Reorganization in

Tourism Industry: Case Study Based on Holistic Listing

of Overseas Chinese Town Group

Tingli Liu, Songling Yang, Wei Zhang

Economic and Management School, Beijing University of Technology, Beijing, China.

Email: [email protected]

Received August 5th, 2012; revised September 6th, 2012; accepted September 18th, 2012

ABSTRACT

This study extends previous research by examining how holistic listing affects the short-term and long-term wealth for

listed company in China. Case study, event study and financial ratios analysis methods are used in the paper. We meas-

ure short-term wealth effect by the extra returns and measure long-term wealth by the five value creation indexes. The

results show that holistic listing of group enterprise injects new motivation for value creation and helps shareholders to

share both long-term and short-term wealth effects. Our research has implications for group enterprises that are striving

to enhance corporate value through capital operation.

Keywords: Holistic Listing; Wealth Effects; Value

1. Introduction

The twelfth five-year plan for national economy and

social development of the People’s Republic of China

clearly stated that we should take the promoting service

industry development as the strategic emphasis of indus-

try upgrading. According to The state council opinions

on speeding up the development of tourism published on

December 2009, tourism was promoted to national strat-

egy in China and clearly put forward to cultivating a

group of competitive large tourism enterprise group. Fu-

ture more, the twelfth five-year plan for national tour-

ism development of People’s Republic of China indi-

cated that the basic direction of development of tourism

in China is to cultivating large tourism enterprise group

with clear primary business, developing route and com-

petitive advantages. We can safely infer that the tourism

group will play a pivotal role in the process of construct-

ing strong tourism country. The possibility of the Chi-

nese tourism enterprise groups grasp the opportunity to

develop tourism national brand and realize rapid devel-

opment depends on their sustainable value creation abil-

ity.

Overseas Chinese Town (OCT) group is a large-scale

state-owned enterprise in China. The major business of

OCT is tourism, OCT already has received 150 million

tourists by the end of year 2009 which made OCT is the

first brand of tourism industry in China. OCT exclusively

launched the Shenzhen OCT holding co. and listed on

Shenzhen securities market in 1997 (stock referred to

OCT A). As the listed subsidiary, OCT A provides a

platform for capital operation of OCT group. The main

business of OCT group implemented holistic listing on

capital market in December 2009, which made OCT

group has better value creation dynamic mechanism and

more clear appeal for value growth. OCT group took the

lead in whole group listing in tourism industry in China,

so the asset reconstruction mode and the economic ef-

fects of whole listing has reference and demonstration

effects to other large-scale tourism groups.

This paper analyzes the wealth effect of tourism asset

reconstruction and discusses the realization route for

value promotion with case study method based on both

capital market and financial data. Our results contribute

to the capital operation and value enhancement of tour-

ism enterprises in China.

The study is organized a follows. Section 2 reviews

the related literatures and theory. Section 3 describes the

holistic listing model of OCT. We analyzes the short-

wealth effect and long-term wealth effect of OCT respec-

tively in Section 4 and Section 5. Section 6 concludes.

2. Theory Basis for Holistic Listing and

Value Creation

Different from the western developed countries, Chinese

capital market began at the transition period. In order to

fulfill the listing requirements, state-owned enterprises

Research on Wealth Effect of Asset Reorganization in Tourism Industry: Case Study Based on Holistic Listing of

Overseas Chinese Town Group

349

usually adopted spin-off method and listed the partial

sound assets on capital market. The function of capital

market has continuously improved with the implementa-

tion of the reform of non-tradable, making the interests

of major shareholders and small-medium shareholder

convergence. Under this background, more and more

listed companies intend to increase the scale and com-

petitive ability of business by the holistic listing.

Holistic listing refers to the whole business of state-

owned enterprise were reconstructed as a joint stock com-

pany and publicly offering stocks, meanwhile, withdraw

the original enterprise [1]. The document of The State-

owned Assets Supervision and Administration Commis-

sion on promoting the capital adjustment and restruc-

turingof state-owned enterprise clearly pointed out sup-

porting enterprises with sound assets and major business

to achieve whole group listing on capital market, encour-

aging the listed state-owned companies to absorb the

whole main business by means of increasing endowment

spread and acquiring assets. After the reform of non-trad-

able shares, the theme of M&A in Chinese capital market

is major shareholders’ assets injection into listed com-

pany and even whole group listing of parent company [2].

The special phenomenon attracted the attention of schol-

ars, for example, Guan analyzed the advantages and dis-

advantages of whole group listing [3], Zhang explored

the realization route of whole group listing based on

boundary theory, internal capital market theory and the

financial management goal [4], Ou Yang & Tang made

empirical research on forty companies that finished

whole group listing and found the whole group listing

contributed to the performance promote and stock raise

[5]. However, Zhu et al. found that additional stock issue

for major shareholder may be the tunneling channel ba-

sed on case study [6].

Modern enterprise has different sections with different

investment opportunities, in order to maximize the total

interest, the headquarter need one visible hand to allocate

resources such as labor, technology and capital to im-

prove the investment effectiveness. For group enterprise,

much money effect and spare money effect are two paths

can be used to increase corporate value, the former refers

to the subsidiary of group enterprise can acquire more

external capital than as a independent enterprise; the lat-

ter refers to group enterprise can allocate the limited

capital in different projects. Whole group listing help the

internal capital market realize the two functions, which

enable group enterprise to own bigger financing platform,

to enhance the capital effective and to avoid expropria-

tion of listed company by major shareholder, thus benefit

the long run development of group enterprise.

Holistic listing also benefits to promote corporate value

from the scale-effect and synergistic-effect. The internal

scale economy lies in adjustment and supplement of as-

sets through whole group listing; the external scale econ-

omy lies in overall strength enhancement, consolidating

market shares of enterprise, providing comprehensive

professional service and thus satisfied different market

needs [5]. From the viewpoint of diversification strategy,

holistic listing contributes to adjustment of assets and de-

crease diversity operation risk. From the viewpoint of

vertical integration strategy, whole group listing benefits

to integrate the value chain companies into one trade

platform, by which reduces transaction costs.

Based on principal agent relation, private offering helps

to increase the equity of major shareholders and unify the

interests of major shareholders and corporation, which

benefits to alleviate the agent problem and increase cor-

porate value [7]. Myers and Majluf pointed out that pri-

vate offering may be viewed as a signal that managers

believed the market value higher than the intrinsic value

due to managers have more information about the com-

pany, so the rational investors may reduce the evaluation

of corporate value when private offering announcement

published, thus induce the negative market reflection [8].

Zhang insisted that the market reflection to whole group

listing via private offering to major shareholder was bet-

ter than other mode of private offerings because the con-

trolling shareholder have motivation to invest sound as-

sets and project to listed companies [9]. According to the

information hypothesis, the more possibility of underes-

timation of current assets value or investment opportuni-

ties, the more information effect, thus the market reflec-

tion will be stronger [8,10].

3. The Holistic Listing Mode of OCT Group

OCT A issued stock publicly in Shenzhen stock ex-

change at 10 September 1997. OCT group successfully

invested the owned shares of Shenzhen WINDOW of the

WORLD, Shenzhen SPLENDID CHINA Co., Shenzhen

HAPPY VALLEY Co. and Changsha WINDOW of the

WORLD into OCT A after OCT A listed on stock market.

OCT A became a holding company specialize in the

theme park as the core of the tourism industry and its

relevant industry operation. OCT group invested the 40%

shares of HUA FANG Co., one sub-company profes-

sional engaged in the real estate business, into the OCT

A respectively in 2000 and 2001, from then on, OCT A

gradually formed the comprehensive advantage of com-

bination of tourism and real estate businesses. The in-

come of OCT A was relatively single and tourism was

the main source of income before 2006, the sales income

of real estate and hotel gradually increased after 2006.

Now, OCT A has been preliminary formed the “tourism

plus real estate” operation mode and become the major

economic growth point of OCT group. The essence of

Research on Wealth Effect of Asset Reorganization in Tourism Industry: Case Study Based on Holistic Listing of

Overseas Chinese Town Group

350

the mode lies in to improve the environment and promote

the land price based on theme park; rapid recovery of

real estate in turn helps to provide development capital

for theme tourism business.

OCT group was the sole non-tradable shareholder of

OCT A before the reform of non-tradable shares. In 2006,

major shareholder of OCT A came up with the scheme of

“every 10 shares send 2.8 shares”, thereby, realized the

full circulation of OCT A shares. Whole group listing

can help OCT A to meet commitment that promised in

the reform of non-tradable, to better protect the interests

of shareholders and listed company, to improve the op-

erational mechanism of OCT group and listed company,

to promote the development and construction of large

scale project, and finally to achieve the goal of group and

listed company.

The model of whole group listing can be divided into

three types: the first model is Reverse acquisition model,

that means the listed company acquires the assets of

group; the second is Merge between listed holding cor-

porations, the premise of this model is that there are two

or more listed companies in the group and the parent

company has almost no operational business; the last

model is group company acquires the listed company and

conducts IPO. Compared with the above models, the

third model has higher requirements for Group Company

including meeting the listing requirements and experi-

encing long examination and approval procedures.In

practice, the first model is more simple and feasible, and

Ou Yang & Tang statistics found that this model ac-

counted for 95% of whole group listing in China [5].

Reverse acquisition model is a feasible way for OCT

to finish the whole group listing in a short time because

OCT group has only one domestic listed company. Fig-

ure 1 shows the business construction of OCT group

before whole group listing.

Through privately issued to group company, OCT A

purchased three kinds of assets from 12 companies con-

trolled by Group Company including tourism real estate,

hotel and other relevant business. The shares marked on

the unlisted companies in the Figure 1 were purchased

by OCT A during the reconstruction. OCT group sold all

the operational assets to listed company and became

Holding Company after the asset reconstruction. The

equity ratio hold by OCT group increased from 48.26%

to 56.36% and the controlling power wasn’t changed.

OCT group has more clear and integrity business con-

struction after whole group listing, as the holding com-

pany, OCT group directly control two listed companies

and OCT A have five boards of businesses including

theme park, tourism real estate, hotel, paper packing, and

other business.

Other operations

Tourism real estate

operations

Hotel operations

OCT Group

OCT AKonka GroupOCT Asia

Huazhong Power

plant

Water and power

Co.

Prope rt y

management Co.

In te rn a ti o n al

media Co.

Hongkong OCT

Hotel Management

Company

Hotel Group

Chengdu OCT

Shanghai OCT

Taizhou OCT

OCT investment

Co.

Huafang Co.

60％（40％）

51％

20％（50％）

25％（40％）

2％（35％）

100％

20％（60％）

45％

100％

71.83％

82％

20％

48.26％16.6 8％

68.26％

listed businesses

unlisted businesses

Beijing OCTEast OCTYunnan OCTTianjin OCT

29.28

％

(Notes: The hatched section shows the companies controlled by OCT A before reorganization; the numbers in brackets

represent shares owned by OCT A)

Figure 1. Business structures of OCT group before reconstruction.

Research on Wealth Effect of Asset Reorganization in Tourism Industry: Case Study Based on Holistic Listing of

Overseas Chinese Town Group

351

4. The Short-Term Wealth Effect of OCT

Group Holistic Listing

Wealth effect refers to the wealth of financial assets holder

increase or decrease as the asset price up or down, in turn

to stimulate or suppress consumption [11]. The change of

share’s wealth is the mirror image of corporate value

trend. The price change of stock before and after asset

restruction as well as corporate performance change pro-

vide sound research basis for wealth effect.

The short-term wealth effect of the paper focuses on

the stock price and return fluctuations raised from asset

reorganization, while the long-term wealth effect concern

the change and trend caused by asset reorganization. The

Table 1 shows the process of asset restructing of OCT A.

This paper selected 9 Jun. 2009 as the event day of the

whole group listing and the widow period of event were

each 20 days before and after event day, together 41 days.

The reason for relatively longer window period is that

some event information had been leaked before 9 June

2009. Figure 2 shows the changing trend compared be-

tween OCT A stock returns and Shenzhen Compound

index A returns during the window period, from which

we can see that the changing trend of OCT A similar to

that of the market, but the amount of variation of OCT A

is bigger and returns of OCT A is higher than those of

Compound index A.

In order to explore whether the whole group listing

brought extra returns for listed company, the paper se-

lected 120 trading days as forecasting period and adopted

market model to estimate the abnormal returns of OCT A.

The model is following Formula (1).

tt m

RR R





 (1)

In the above model, ARt, is the abnormal return of firm

i in day t; Rt is the reality return in day t, the natural loga-

rithm of the ratio of closing price; α and β were obtained

from regression on return data of estimated days; Rm is

the market return.

Figure 2. Returns change trend of OCT A during the win-

dow period.

Table 1. The process of asset restructing of OCT A.

Time Event

19 May 2009 Sidecar announcement for significant

asset restricting

8 June 2009 Pass the agreement on issuance of stock

to purchase assets

9 June 2009 Official launch announcement and

restore trade

11 November 2009 Private offering shares began trade,

restructing completed

The regression outcome is following Formula (2):

0.001 0.924



 (2)

Based on Formula (2), the abnormal returns for some

key point are listed on following Table 2.

It can be inferred from the Table 2 that the average

abnormal return is 1% for the event window period [–20,

20] and pass the T-test of 10% of the significant level,

the abnormal return reach up to 13.4% during the win-

dow period [–15, 15] and pass the T-test of 5% of the

significant level. In addition, the paper also calculated

the accumulative abnormal returns for each observation

period, which all significant in statistic. We can draw a

conclusion that the market reacted to the information of

whole group listing positively and thus increased the

short-term wealth of shareholders.

From the above evidence, we can infer that whole

group listing event transferred information to market that

quality assets had been invested into listed company and

controlling share of major shareholder increased, which

have positive significance and market gave positive re-

flection.

5. Long-Term Wealth Effects of OCT Group

Holistic Listing

Assets of OCT A increased by 110.49% since the re-

struction and the liquidity asset has a sharp rise with in-

creased by 407.85%, at the same time, increase in the

proportion of long-term debts and decrease in the propor-

tion of interest-bearing liabilities contribute to the corpo-

rate liquidity and lighten the burden of debt repayment.

The sound asset structure in turn promotes income struc-

ture more reasonable and the tourism real estate mode

more outstanding. Table 3 lists the major value creation

index.

The financial objective of OCT is to maximize the

value of stockholder, from the comparative analysis, we

can see that the major value indexes in 2010 are all better

than those in 2009. In order to compare OCT A with

other companies under the same industry, according to

the industry division issued by CSRC (China Securities

Research on Wealth Effect of Asset Reorganization in Tourism Industry: Case Study Based on Holistic Listing of

Overseas Chinese Town Group

352

Table 2. Abnormal returns of OCT A.

Trading

period

Window

period AR T-value Sig. (2-tailed)

4.20 - 7.8 [–20,20] 0.01 1.894 0.065*

4.27 - 7.1 [–15,15] 0.134 2.257 0.031**

*p < 0.1; **p < 0.05.

Table 3. The major value creation index of OCT A.

Index 2010 2009 2008

Sales volume (RMB billion)

Growth rate

17.32

（58%）

10.96

（26.6%）

8.66

Income before tax (RMB

billion)

Growth rate

4.35

（82.8%）

2.38

（21.43%）

1.96

Net profit belongs to

shareholders (RMB billion)

Growth rate

3.04

（77.8%）

1.71

（19.6%）

1.43

Earnings per share

(RMB/share)

Growth rate

0.98

（78.2%）

0.55

（19.6%）

0.46

Return on equity

Growth rate

25.71%

（50.5%）

17.08%

（5.2%）

16.24%

Regulatory Commission), this paper selected 19 compa-

nies as the comparison sample (as shown in Table 4).

From the financial data comparison of the tourism indus-

try, we can infer safely that the value creation ability of

OCT A is the industry leader. The Table 4 also reflects

that the difference between OCT A and industry average

has been narrowed year by year, which illustrate that

OCT A still need to consolidate and develop the new

value growth and give full play advantages of whole

group listing.

Table 5 shows the sales sources and composition of

OCT A. It can be inferred that the main sources of reve-

nue are tourism and real estate business. With high gross

margin, tourism and real estate constitute the core busi-

ness of value creation. Besides, paper packaging as the

new business plate is the new economic growth point

fostered by the group. Year 2010 was the first whole

business year, from the Table 5, we can see that the pro-

portion of real estate income increased obviously and the

high gross margin contributed to form value creation

leverage effect. The reason of high gross margin of real

estate is that relatively lower land cost for tourism project

construction compare to pure city real estate develop-

ment.

According to the above data and analysis, it can be in-

ferred that OCT A is a capital operating platform for

Table 4. Value creation index comparison under industry.

Index 2010 2009 2008

OCT A 19.2% 17% 33.5%

Net profit marginIndustry

average 14.1% 6.3% 1.5%

OCT A 0.98 0.55 0.46

Earnings per share

(RMB/share) Industry

average 0.38 0.21 0.13

OCT A 25.71% 17.08%16.24%

Return on equity

Industry

average 10.7% 7.4% 4.8%

Table 5. Sales sources and composition of OCT A after the

asset restruction RMB billion.

Sales Percentage Gross margin

200920102009 2010 20092010

Tourism

comprehensive

income

7.069.4486.5% 54.8% 42.36%47.72%

Real estate

income 3.257.0329.8% 40.8% 58.06%59.45%

Paper packaging

income 0.6040.765.5% 4.4% 11.38%12.02%

total 10.9117.23 1 1 45.82%50.94%

OCT group asset restruction that make the listed com-

pany has more clearly business constitute and high abil-

ity of value creation. Indisputably speaking, OCT A keep

the industry lead.

6. Conclusions

6.1. Holistic Listing Provides Optimized Value

Creation Platform

Holistic listing of OCT Group injects new motivation for

value creation and helps shareholders to share in long-

term and short-term wealth effects. In the short term,

capital market reacted positively to the event of whole

group listing and created significant positive abnormal

returns. In the long term, ability of value creation for

shareholders is relatively high both on basis of horizontal

and vertical analysis. The intrinsic reasons for corporate

value promotion are as following.

On the one hand, the business boundary of Group

Company becomes clear through whole group listing.

During the development process of OCT group, formed

many subsidiary companies which have business connec-

tion but belong to different listed company, thus induced

a lot of related transactions and vague the transaction

boundary. For example, there are 5 sub-companies of

OCT group had connected transaction with OCT A.

Research on Wealth Effect of Asset Reorganization in Tourism Industry: Case Study Based on Holistic Listing of

Overseas Chinese Town Group

353

Whole group listing makes these assets become an inte-

gral part of whole and contribute to sustainable devel-

opment of public company.

On the other hand, holistic listing broadens the financ-

ing channel for Group Company. OCT A indirectly con-

trol OCT Asian Co. via controlling the sub-company

Hong Kong OCT, which helps to constructing a sound

financing channel on oversea capital market and realize

complete control on real estate business in the OCT

group, as well as avoid competition between sub-com-

panies belongs to one group.

6.2. The Path of Promoting Corporate Value

through Holistic Listing

Relying on “tourism + real estate” double drive mode,

cultivating paper packaging business as new economic

growth point, OCT A has been forming relatively clear

value creation path.

The value creation mode of OCT A can be summa-

rized as: based on development of tourism projects and

brought theme park brand into full play to realize the

maximize margin effects of tourism development. Mean-

time, the OCT A also mine and cultivate the new value

contribution point and form the sustainable value growth.

OCT A also constructed the sound theme park industry

chain including tourist attraction, hotel, culture perform-

ing and digital entertainment. Real estate is extension and

expansion of theme park industry value chain. The pro-

portion of hotel business and real estate business have

been raised since the whole group listing, which strength

both internal and external industry chain. The replicabil-

ity feature of business mode of OCT in favor of leverage

effect of value creation and increased the value volume

through scale effect.

6.3. Inspiration of Case Study

This case study has positive reference and enlightenment

for other tourism group companies: the source of value

creation is perfecting and expanding of industry chain;

the major method of value promotion is capital operation.

The value growth of OCT group can be divided into

three stages. The first stage was from the company foun-

dation to year 2006, the tourist industry development

with the core of theme park construction laid the industry

leading position and gradually formed the internal indus-

try chain of tourism. The second stage was from year

2006 to year 2009 before whole group listing, the real

estate business increased rapidly and brand effect en-

hanced obviously in that period, accompanying with

tourism industry chain were expanded outwardly and

gradually formed the double drive mode of “tourism +

real estate” that internal and external linkage. The last

stage began from year 2009 after the whole group listing,

the assets of OCT group started to be operated in one

capital platform, and thus the factors including manage-

ment structure optimization, broaden financing channel,

reduced by affiliated transactions and competition be-

tween sub-companies in one group provide shareholders

with more reliable value creation sources.

In the framework of Group Company, take tourism

business as core and extend to relevant industry, actively

participate in capital market, thus finally to promote the

value creation ability of Group Company, which may be

one solution about the strategy development of Group

Company.

7. Acknowledgements

Appreciate the following foundation: National Social

Science Foundation of China (No. 11CGL026); China

Postdoctoral Science Foundation (No. 20090460450);

The Education Committee of Beijing (No. PHR201008-

308); Humanities and Social Sciences Planning Fund

Supported by Chinese Ministry of Education (No.10YJ-

A630185).

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