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Introduction
There is a considerable stream of research claiming that multi-business companies are at a valuation disadvantage compared to their focused peers. Empirical studies show, however, that valuation discounts of diversified firms vary strongly by region, over time, and especially by company sample ([33] Palich et al. , 2000). For example, in a recent study The Boston Consulting Group and HHL - Leipzig Graduate School of Management analyzed more than 1,100 diversified and focused companies over the period from 2005 through 2009 and found that the average conglomerate discount in Western Europe and North America shrank to -6.0 percent and -7.2 percent, respectively. In the Asia-Pacific region, a very small average conglomerate discount was transformed into a conglomerate premium ([5] Beckmann et al. , 2012). Overall, the study found that more than 50 percent of the companies in the sample had a conglomerate premium by 2009. This supports the conclusion of many observers that it is not so much the degree of diversity that drives the value of a company but rather the way this diversity is managed by the corporate parent - its corporate parenting strategy.
But how can the parenting strategy of a corporate parent be described and analyzed? This paper tries to answer this question by outlining a comprehensive theory-based framework of parenting activities that may add or destroy value to the businesses in the corporate portfolio. The framework can also be used by corporate practitioners to understand the current implicit parenting strategy of their company, assess its performance and adjust it for improving the net corporate value creation.
The theoretical foundation of the framework is the concept of parenting advantage as presented by [18] Goold et al. (1994). The concept claims that a company should strive to be the best possible owner for the businesses in its portfolio, or sell them at favorable terms to a better owner. In order to achieve parenting advantage, the characteristics of the corporate parent must be compatible with the critical success factors of the businesses and their specific needs. In this way, parenting advantage should determine in which operational activities a company invests its financial and managerial resources and how the corporate parent influences the business units under its control.
After its introduction in the...