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

Research output: Journal PublicationsJournal Article (refereed)peer-review

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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.
Original languageEnglish
Pages (from-to)93-110
Number of pages18
JournalThe International Journal of Accounting
Issue number1
Publication statusPublished - 1 Jan 2004


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

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