Transfer Pricing for Coordination and Profit Allocation

Martini JT (2011)
Australian Journal of Business Administration and Management Research 1(6): 7-26.

Zeitschriftenaufsatz | Veröffentlicht | Englisch
 
Abstract / Bemerkung
This paper examines coordination and profit allocation in a profit-center organization using a single transfer price. The model includes compensations, taxes, and minority interests of two divisions deciding on capacity and sales. The analysis covers arm's length transfer prices which are either administered by central management or negotiated by the divisions. Administered transfer prices refer to past transactions and therefore maximize firm-wide profit net of divisional compensations, taxes, and minority profit shares only for given decentralized decisions. From an ex-ante perspective, it is shown that adverse effects on coordination may result in inefficient divisional profits of which all stakeholders suffer. We motivate a positive effect of advance pricing agreements, intra-firm guidelines, and restrictive treatments of changes in the firm's accounting policy. By contrast, negotiations ignore compensations, taxes, and minority shares but yield efficient divisional profits. Negotiations seem compelling as they perfectly reflect the arm's length principle. Moreover, common practices such as arbitration or one-step pricing schemes allow the firm to engage in manipulation at the expense of other stakeholders.
Stichworte
Transfer Pricing; Coordination; Profit Allocation; Managerial Accounting; Taxation; Financial Reporting
Erscheinungsjahr
2011
Zeitschriftentitel
Australian Journal of Business Administration and Management Research
Band
1
Ausgabe
6
Seite(n)
7-26
eISSN
1839-0846
Page URI
https://pub.uni-bielefeld.de/record/2948574

Zitieren

Martini JT. Transfer Pricing for Coordination and Profit Allocation. Australian Journal of Business Administration and Management Research. 2011;1(6):7-26.
Martini, J. T. (2011). Transfer Pricing for Coordination and Profit Allocation. Australian Journal of Business Administration and Management Research, 1(6), 7-26.
Martini, J. T. (2011). Transfer Pricing for Coordination and Profit Allocation. Australian Journal of Business Administration and Management Research 1, 7-26.
Martini, J.T., 2011. Transfer Pricing for Coordination and Profit Allocation. Australian Journal of Business Administration and Management Research, 1(6), p 7-26.
J.T. Martini, “Transfer Pricing for Coordination and Profit Allocation”, Australian Journal of Business Administration and Management Research, vol. 1, 2011, pp. 7-26.
Martini, J.T.: Transfer Pricing for Coordination and Profit Allocation. Australian Journal of Business Administration and Management Research. 1, 7-26 (2011).
Martini, Jan Thomas. “Transfer Pricing for Coordination and Profit Allocation”. Australian Journal of Business Administration and Management Research 1.6 (2011): 7-26.
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OA Open Access

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