Internal Capital Market Controls and Financial Performance in Multidivisional Firms

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It is proposed that within the population of M-form firms, the control systems necessary to realize economic benefits from interrelationships between sub-units of a firm are incompatible with the systems necessary to realize benefits from an M-form type internal capital market. This hypothesis is tested on 156 large UK firms. Questionnaire data is used to classify the firms according to their internal control characteristics. The findings provide tentative support for the hypothesis.