Abstract
We examine the efficiency of the internal capital market under three alternative ownership structures – the dispersed ownership, the concentrated ownership and the Controlling-Minority-Shareholder (CMS) structure. Although the highest efficiency is achieved under the concentrated ownership, our analysis shows that the efficiency is higher under the CMS structure than under the dispersed ownership. The efficiency gain is greater if the agency problem between shareholders and the Headquarter (HQ) manager is greater. The conclusion of the analysis is in line with the observed patterns of firm organization in developing economies.
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