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Transfer Price Negotiation in the Presence of Unequal Bargaining Power: The Effect of a Peer Evaluation Scheme on Inter‐divisional Profit Distribution

Transfer Price Negotiation in the Presence of Unequal Bargaining Power: The Effect of a Peer... This study examines how managers balance economic incentives and inter‐divisional equity considerations during transfer price negotiations. Our experiment shows that both buyers and sellers are willing to give up a significant amount of their profits to pursue a more equitable outcome (one that results in greater inter‐divisional profit equalisation). We also find that incorporating peer evaluation schemes into negotiators' formal incentive plans has both economic and social‐psychological impacts on negotiation behaviour, resulting in even greater inter‐divisional profit equalisation. While this outcome may seem ‘fairer’ to the individual managers, from the firms' perspective profit equalisation can obscure divisional performance, potentially leading to resource allocation inefficiencies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australian Accounting Review Wiley

Transfer Price Negotiation in the Presence of Unequal Bargaining Power: The Effect of a Peer Evaluation Scheme on Inter‐divisional Profit Distribution

Cheng, Mandy M.; Hsieh, Cathy
Australian Accounting Review , Volume 19 (3) – Sep 1, 2009
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12 pages

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Publisher
Wiley
Copyright
© 2009 CPA Australia
ISSN
1035-6908
eISSN
1835-2561
DOI
10.1111/j.1835-2561.2009.00057.x
Publisher site
See Article on Publisher Site

Abstract

This study examines how managers balance economic incentives and inter‐divisional equity considerations during transfer price negotiations. Our experiment shows that both buyers and sellers are willing to give up a significant amount of their profits to pursue a more equitable outcome (one that results in greater inter‐divisional profit equalisation). We also find that incorporating peer evaluation schemes into negotiators' formal incentive plans has both economic and social‐psychological impacts on negotiation behaviour, resulting in even greater inter‐divisional profit equalisation. While this outcome may seem ‘fairer’ to the individual managers, from the firms' perspective profit equalisation can obscure divisional performance, potentially leading to resource allocation inefficiencies.

Journal

Australian Accounting Review – Wiley

Published: Sep 1, 2009

References

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