A multi-case investigation of a theory of the transfer pricing process

Article Abstract:

A theory of the sourcing and transfer pricing process from a transaction costs perspective is developed based on the works of Williamson (1979), Spicer (1988) and Walker (1988). It is then empirically investigated with the use of a multi-case research design that focuses on factors relevant to the transfer pricing process in four major, vertically integrated electronics companies in the US. These firms are High Tech Inc., World-Wide Inc., Continental Communications, and Southern Defense and Aerospace. The results show a positive relationship between the strategies used by these companies to manage and set transfer prices and the reported degree of transaction-specific investment related to each transfer. These strategies are also found to be related to the strategic value of the transferred component and the production capabilities of the component division.

Other Electrical Equipment and Component Manufacturing, Electronics, Electronic Components and Accessories, Prices and rates, Electronics industry, Transfer pricing

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Agency theory: a falsification perspective

Article Abstract:

Agency theory has been interpreted in accounting literature for two purposes: determining economically efficient accounting practices; and as a means of explaining and forecasting situations involving risk and asymmetrical information. Two major problems arising out of the application of agency theory to accounting are the moral hazard problem and the adverse selection problem. In the moral hazard problem, the principal cannot observe why an agent chose an action when the principal would have opted for an alternative action. The adverse selection problem is the result of the agent having access to information prior to choosing an action which cannot be observed by a principle. Both can be overcome by improved access to public information. Agency theory serves as a valuable theory for delineating contractural relationships under uncertainty.

Accounting

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