The external capital market allocates resources to divisions according to their probability of generating excess returns on the firm's borrowed financial capital in the competitive form of the M-form organizational structure.

Question

Quizplus · Accepted Answer

The external capital market allocates resources based on the overall performance and prospects of the firm, not specifically to its divisions. The internal capital market within a firm, especially in an M-form (multidivisional form) organization, is responsible for allocating resources to its divisions based on their performance and potential to generate excess returns.

The External Capital Market Allocates Resources to Divisions According to Their