In principle,the information advantages of a diversified company mean that internal capital markets are more efficient than external capital markets.In practice internal capital markets tend not to reallocate investment funds from poorly-performing subsidiaries to highly-performing subsidiaries.

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In theory, diversified companies can leverage information advantages to allocate capital more efficiently internally than what might be achieved through external markets. However, in practice, these firms often struggle to reallocate resources effectively from underperforming to high-performing divisions, due to various internal biases, informational asymmetries, and agency problems.

In Principle,the Information Advantages of a Diversified Company Mean That