Title

The influence of management perception of environmental variables on the choice of international transfer-pricing methods

Document Type

Journal article

Source Publication

The International Journal of Accounting

Publication Date

1-1-2004

Volume

39

Issue

1

First Page

93

Last Page

110

Keywords

Environmental variables; Foreign investors; International transfer-pricing; Major developing economy

Abstract

In this paper, we provide an empirical study of the association between the management's perception of the importance of environmental variables and their choice of international transfer-pricing methods in the context of a developing economy. Given the sizable investment flowing to developing countries and the amount of economic exchange that occurs through foreign investment in these countries, we believe this is a significant issue. For this study, we collected the data from field interviews with the management of large foreign investment enterprises (FIEs) in China. These FIEs include mainly investors from the United States, Japan, and Europe. Our evidence indicates that the more important management perceives the interests of local partners and the maintenance of a good relationship with host government to be, the more likely that the FIE will use a market-based transfer-pricing method. On the other hand, the more important the management perceives foreign exchange controls in transfer-pricing decisions, the more likely the FIE will choose a cost-based method. Finally, there is a moderate agreement between U.S. and non-U.S. FIEs on the relative importance of the environmental variables.

DOI

10.1016/j.intacc.2003.12.004

Print ISSN

10944060

E-ISSN

22133933

Publisher Statement

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Full-text Version

Publisher’s Version

Recommended Citation

Chan, K. H., & Lo, A. W. Y. (2004). The influence of management perception of environmental variables on the choice of international transfer-pricing methods. The International Journal of Accounting, 39(1), 93-110. doi: 10.1016/j.intacc.2003.12.004