Transfer Prices and Profit Maximization in Multinational Enterprise Operations

D J Fowler
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D J Fowler: McGill University

Journal of International Business Studies, 1978, vol. 9, issue 3, 9-26

Abstract: Multinational enterprises are able to affect the profits reported by their subdivisions by altering transfer prices of goods shipped between affiliates. This paper shows that the profit maximizing price is a function of the level of ownership in the subsidiary, the dividend payout ratio of the subsidiary, the effective marginal tax rates in both parent and subsidiary countries, and the tariff on the goods transferred. In general, it is found that Multinational Enterprises appear to set transfer prices to Canadian subsidiaries so as to maximize the overall profits of the enterprise.©1978 JIBS. Journal of International Business Studies (1978) 9, 9–26

Date: 1978
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