A theoretical model is built to explore the interaction between finance/governance structure and investment/competition behavior of a business group in the product market. A business group is a corporate conglomerate consisting of plural, legally independent firms, which differs from a multi-division firm. This paper is the first attempt to investigate the interaction between the financial structure and the competitive behavior of a world-wide prevalent organization form of business, which is referred to as a business group. To operate the business to the same scale, because of larger outside financing capacity, a business group generally needs weakly less internal capital and invests the same amount or more than does a multi-division firm. This explains the prevalence of business groups. However, if the market size is medium and the agency problem of outside equity is large, the business group does not necessarily use less internal capital or invest more than the multi-division firm. With respect to strategic competition, because of the controlling shareholder’s entrenchment, the business group deters the stand-alone rival’s entry only for larger markets, and is preyed upon in a smaller region of the parameters than does the multi-division firm. This is that the business group behaves less strategically than does the multi-division firm. Overall, this paper states that the business group saves internal capital, but, if it is subject to the agency problem of outside equity, does not generally have an advantage in economic efficiency or strategic competition over the multi-division firm. It suggests that the choice of business organization form depends on market size, the scarcity of capital and the extent of the agency problem.