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Divisional performance measurement and transfer pricing for intangible assets

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  • Nicole Bastian Johnson

    (University of California)

Abstract

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.

Suggested Citation

  • Nicole Bastian Johnson, 2006. "Divisional performance measurement and transfer pricing for intangible assets," Review of Accounting Studies, Springer, vol. 11(2), pages 339-365, September.
    • Handle: RePEc:spr:reaccs:v:11:y:2006:i:2:d:10.1007_s11142-006-9006-z
    DOI: 10.1007/s11142-006-9006-z
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    References listed on IDEAS

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    Cited by:

    1. Thomas Pfeiffer & Ulf Schiller & Joachim Wagner, 2011. "Cost-based transfer pricing," Review of Accounting Studies, Springer, vol. 16(2), pages 219-246, June.
    2. Jan Thomas Martini, 2015. "The optimal focus of transfer prices: pre-tax profitability versus tax minimization," Review of Accounting Studies, Springer, vol. 20(2), pages 866-898, June.

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    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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