Determinants and consequences of transfer pricing autonomy: An empirical investigation

Xiaoling Chen, Shimin Chen, Fei Pan, Yue Wang

Research output: Contribution to journalArticle

Abstract

Top management of a multidivisional firm needs to strike a balance between providing transfer pricing autonomy to divisional managers and retaining some level of control to prevent dysfunctional behavior. Little empirical evidence exists on how top management makes this trade-off. Drawing on agency theory, we predict that transfer pricing autonomy is influenced by intermediate product standardization, foreign investment, tax rate difference, and the weight on firm-level performance measures in the divisional manager’s performance evaluation. We also predict that the extent of mismatch between transfer pricing autonomy and organizational characteristics leads to lower perceived fairness and perceived transfer pricing effectiveness by divisional managers. Using data collected from a cross-sectional survey of 210 divisional managers, we find results consistent with our predictions.

Original languageEnglish (US)
Pages (from-to)225-259
Number of pages35
JournalJournal of Management Accounting Research
Volume27
Issue number2
DOIs
StatePublished - Sep 1 2015

Fingerprint

Transfer pricing
Autonomy
Managers
Empirical investigation
Top management
Empirical evidence
Perceived fairness
Organizational characteristics
Standardization
Prediction
Performance measures
Trade-offs
Foreign investment
Agency theory
Performance evaluation
Mismatch
Tax rate

Keywords

  • Agency theory
  • Autonomy
  • Decentralization
  • Transfer pricing

ASJC Scopus subject areas

  • Business and International Management
  • Accounting

Cite this

Determinants and consequences of transfer pricing autonomy : An empirical investigation. / Chen, Xiaoling; Chen, Shimin; Pan, Fei; Wang, Yue.

In: Journal of Management Accounting Research, Vol. 27, No. 2, 01.09.2015, p. 225-259.

Research output: Contribution to journalArticle

@article{2efbaaa0fd1e4769b12064bfec0ee05e,
title = "Determinants and consequences of transfer pricing autonomy: An empirical investigation",
abstract = "Top management of a multidivisional firm needs to strike a balance between providing transfer pricing autonomy to divisional managers and retaining some level of control to prevent dysfunctional behavior. Little empirical evidence exists on how top management makes this trade-off. Drawing on agency theory, we predict that transfer pricing autonomy is influenced by intermediate product standardization, foreign investment, tax rate difference, and the weight on firm-level performance measures in the divisional manager’s performance evaluation. We also predict that the extent of mismatch between transfer pricing autonomy and organizational characteristics leads to lower perceived fairness and perceived transfer pricing effectiveness by divisional managers. Using data collected from a cross-sectional survey of 210 divisional managers, we find results consistent with our predictions.",
keywords = "Agency theory, Autonomy, Decentralization, Transfer pricing",
author = "Xiaoling Chen and Shimin Chen and Fei Pan and Yue Wang",
year = "2015",
month = "9",
day = "1",
doi = "10.2308/jmar-50927",
language = "English (US)",
volume = "27",
pages = "225--259",
journal = "Journal of Management Accounting Research",
issn = "1049-2127",
publisher = "American Accounting Association",
number = "2",

}

TY - JOUR

T1 - Determinants and consequences of transfer pricing autonomy

T2 - An empirical investigation

AU - Chen, Xiaoling

AU - Chen, Shimin

AU - Pan, Fei

AU - Wang, Yue

PY - 2015/9/1

Y1 - 2015/9/1

N2 - Top management of a multidivisional firm needs to strike a balance between providing transfer pricing autonomy to divisional managers and retaining some level of control to prevent dysfunctional behavior. Little empirical evidence exists on how top management makes this trade-off. Drawing on agency theory, we predict that transfer pricing autonomy is influenced by intermediate product standardization, foreign investment, tax rate difference, and the weight on firm-level performance measures in the divisional manager’s performance evaluation. We also predict that the extent of mismatch between transfer pricing autonomy and organizational characteristics leads to lower perceived fairness and perceived transfer pricing effectiveness by divisional managers. Using data collected from a cross-sectional survey of 210 divisional managers, we find results consistent with our predictions.

AB - Top management of a multidivisional firm needs to strike a balance between providing transfer pricing autonomy to divisional managers and retaining some level of control to prevent dysfunctional behavior. Little empirical evidence exists on how top management makes this trade-off. Drawing on agency theory, we predict that transfer pricing autonomy is influenced by intermediate product standardization, foreign investment, tax rate difference, and the weight on firm-level performance measures in the divisional manager’s performance evaluation. We also predict that the extent of mismatch between transfer pricing autonomy and organizational characteristics leads to lower perceived fairness and perceived transfer pricing effectiveness by divisional managers. Using data collected from a cross-sectional survey of 210 divisional managers, we find results consistent with our predictions.

KW - Agency theory

KW - Autonomy

KW - Decentralization

KW - Transfer pricing

UR - http://www.scopus.com/inward/record.url?scp=84957057788&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84957057788&partnerID=8YFLogxK

U2 - 10.2308/jmar-50927

DO - 10.2308/jmar-50927

M3 - Article

AN - SCOPUS:84957057788

VL - 27

SP - 225

EP - 259

JO - Journal of Management Accounting Research

JF - Journal of Management Accounting Research

SN - 1049-2127

IS - 2

ER -