Cost-based transfer pricing

This paper compares the performance of alternative cost-based transfer pricing methods. We adopt an incomplete contracting framework with asymmetric information at the trading stage. Transfer pricing guides intra-company trade and provides incentives for value-enhancing specific investments. We compare actual-cost transfer prices that include a markup over marginal costs with standard-cost transfer prices that are determined either by the central office ex ante (centralized standard-cost transfer pricing) or by the supplying division at the trading stage (reported standard-cost transfer pricing). For the actual-cost methods, we show that markups based on the joint contribution margin (contribution-margin transfer pricing) dominate purely additive markups (cost-plus transfer pricing). We obtain the following results. (1) Centralized standard-cost transfer pricing dominates the other methods if the central office and the divisions ex ante face low cost uncertainty. (2) The actual-cost methods dominate the other methods if the central office and the divisions ex ante face high cost uncertainty and later, at the trading stage, the buying division receives sufficient cost information. (3) Reported standard-cost transfer pricing dominates the other methods if the central office and the divisions ex ante face high cost uncertainty, and the buyer has insufficient cost information at the trading stage.     

Decentralized capacity management and internal pricing

This paper studies the acquisition and subsequent utilization of production capacity in a multidivisional firm. In a setting where an upstream division provides capacity services for itself and a downstream division, our analysis explores whether the divisions should be structured as investment or profit centers. The choice of responsibility centers is naturally linked to the internal pricing rules for capacity services. As a benchmark, we establish the efficiency of an arrangement in which the upstream division is organized as an investment center, and capacity services to the downstream division are priced at full historical cost. Such responsibility center arrangements may, however, be vulnerable to dynamic hold-up problems whenever the divisional capacity assignments are fungible in the short-run, and therefore, it is essential to let divisional managers negotiate over their actual capacity assignments. The dynamic hold-up problem can be alleviated with more symmetric choice of responsibility centers. The firm can centralize ownership of capacity assets with the provision that both divisions rent capacity on a periodic basis from a central unit. An alternative and more decentralized solution is obtained by a system of bilateral capacity ownership in which both divisions become investment centers.     

Organizational views of transfer pricing

Models of organization provide different sets of conceptual lenses for describing a transfer pricing decision context. Each model provides different explanations or views of events. Implications of these models or views for framing this decision context as well as for the dimensions and process of choice are discussed.     

Achieving external and internal targets with exchange-rate and interest-rate intervention

This paper analyses how exchange-rate and interest-rate intervention rules can be computed so as to stabilize price and output and real exchange rate in the face of a variety of random shocks. The major finding is that there exist a unique optimal intervention rule for both internal and external targets in the face of all random disturbances except for LM and foreign interest rate disturbances.     

Divisional performance measurement and transfer pricing for intangible assets

This paper examines the effectiveness of three transfer pricing methodologies for an intangible asset that is developed through bilateral, sequential investment. In general, a royalty-based transfer price that can be renegotiated provides better investment incentives than either a non-negotiable royalty-based transfer price or a purely negotiated transfer price, and in some cases induces first-best investment. This result contrasts with previous research that finds that the inability to limit renegotiation of initial contracts reduces investment efficiency. Further, I examine how tax transfer pricing rules inform optimal internal transfer prices when the firm decouples internal and external transfer prices.     

An outcome-based assessment of international transfer pricing policy

Instead of concentrating on the selection of the optimal transfer pricing method, this paper focuses on the consequences of international transfer pricing for multinational entities. A sample of U.S.-based multinational firms is employed to determine if transfer pricing results in measurable financial outcomes. Results of the study indicate that firms employ international transfer pricing to meet a variety of objectives. The dollar value of international transfers and the foreign sales percentage are both significant explanatory variables for the financial outcomes of these objectives.     

Towards an organizational theory of the transfer pricing process

Understanding the transfer pricing issue as it arises in large decentralized firms is important, because it represents a pervasive problem in the design of managerial accounting and control systems in complex organizations. This paper draws on the growing literature on the economics of internal organization to develop an understanding of the strategic, organizational and transactional conditions under which transfer pricing (and related control) issues arise, and the organizational processes used to implement intra-firm transfers of products and to determine transfer prices. The objective of the paper is to develop a theory of the transfer pricing process and to reduce hypotheses from the theory.     

Assessing emerging issues. The external and internal approach

This article analyses emerging issues trying to find elements to assess the possibility that they become a relevant trend in the future using a twofold perspective for that purpose. On the one hand it considers the external approach, that is, the analysis of visible signals linked to the emerging issues that in an early stage are called “weak signals”. On the other hand, it tries to study emerging issues taking into account their internal motivations. In this case the aim is to value the social, economic or other kind of reasons that are hidden under emerging issues. A post-structuralism perspective (CLA, causal layered analysis) is used to address this objective.This double approach allows to consider emerging issues in a holistic way, taking into account what is visible and what is not so apparent. In order to offer conclusions and results a real use case is included analyzing the emerging issues showed in the report “Informe de la Sociedad de la Información 2013” (one of the references about information society situation and ICT trends in Spain).     

突出内审优势 推进审计转型积极搭建内部审计和外部审计监督的科学平台

今年初,中国农业银行股份制有限公司一成立,总行党委就确立了董事会领导下的内部审计监督模式,在分离了原有部分操作层面的审计职能后,赋予了农行内部审计更高的独立性、权威性与超脱性,以确保内部审计职能的充分有效发挥,这是完善公司治理机制的重要举措。这种建立在董事会领导下的内部审计模式,是以系统化、规范化、制度化的方法对风险管理、控制及治理程序进行监督评价,为农行股改后提高运作效率,增加价值,促进各项业务健康有序、持续发展提供监督保障。     

An empirical study of voluntary transfer pricing disclosures in China

This paper empirically investigates the factors that affect the management’s voluntary disclosures of the transfer pricing details of related-party transactions. Using Chinese data from 2004 and 2005, we hypothesize and find that firms that make voluntary disclosures of the pricing methods of related-party transactions are negatively associated with (i) a higher level of earnings management (as captured by abnormal related-party transactions) and (ii) its underlying incentives (as captured by the management’s performance-linked bonuses and the firm’s incentives to achieve earnings targets); further, they are positively associated with (i) a higher percentage of independent directors and (ii) a higher percentage of government ownership. Overall, our findings suggest that earnings management and its incentives, board composition, and ownership structure significantly influence the voluntary disclosure decisions of managers.