Ch. 8: Conglomerate Firms and Internal Capital Markets 477
a positive shock in industry 1 it grows faster in industry 2. By contrast, byRemark 3
the model here predicts that if a conglomerate receives a positive shock in industry 1
and is very productive in industry 1 it grows more slowly in industry 2. Only when a
conglomerate that receives a positive shock in industry 1 and is relatively unproductive
in industry 1 does it grow faster in industry 2. Thus these predictions differ from agency
and empire building models.
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