Corporations and conglomerates have developed as a form of property rights to internalize the external benefits from commercial activities. In order to successfully internalize the benefits, corporations and conglomerates must reduce both decision-making and external costs that are the most important part of the overall internalization costs. The decision-making costs are reduced by concentrating decision-making authority in the hands of a small number of managers, and external costs that might be imposed on the shareholders are avoided or reduced through stock market transactions. In this regard, conglomerates that consist of affiliated firms have developed with a controlling shareholder whereas no controlling shareholder characterizes M-form conglomerates. Documented empirical observations largely support these findings. Finally, advocates of ‘corporate governance movement’ fail to understand the economic theory underlying the operations of corporations and conglomerates.