Divisional performance measurement and transfer pricing for intangible assets

Nicole Bastian Johnson ()
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Nicole Bastian Johnson: University of California

Review of Accounting Studies, 2006, vol. 11, issue 2, No 10, 339-365

Abstract: 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.

Keywords: Performance measurement; Intangible asset; Transfer price; Tax; Multinational firm (search for similar items in EconPapers)
JEL-codes: C78 L23 M41 (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/s11142-006-9006-z

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