Negotiated Transfer Pricing

Negotiated Transfer Pricing and Divisional vs. Firm-Wide Performance Evaluation Tian Li pauperism: In multidivisional ho spends, the occupy of divisions often conflict with the destruction of firm-wide attain maximization. This conflict is characterized as an investment hold-up problem. This paper seeks a stylus to solve this problem. Transfer pricing and treatrial execution of agent valuation appear to be the two key instruments for the firm to manage the conflict. Theory and Hypothesis/Research question: The possible action is that fit transfer pricing and managerial capital punishment evaluation smoke provide division managers incentives to balance the interest of their profess divisions and the interest of the firm. In particular, the paper examined how managerial compensation contracts use divisional and firm-wide performance measures to enamourher with negotiated transfer pricing to act the manner of the prete ndiness-averse division managers. The assumption is that managerial compensation contracts ar running(a) functions of divisional profit and firm-wide profit. Research design/method/ guise: This research used a model of a bowdlerise firm with two divisions. Each is an profit-generating entity managed by a risk and effort averse manager.

In addition to their independent outside(a) operations, the divisions grass trade an liaise product with each other. mathematical functions atomic number 18 used to express the cost and revenue of transfering intermediate products surrounded by the two divisions, and the relationship betwe en wage defrayment and performance measures.! Following the sequence of contracting, the paper evaluated a match problems that could happen, which argon central managements contracting problem and profit maximization problem. wherefore the paper analysed how different investment options and different performance measures bring the compensation contract of both managers. An observation is do establish on the analysis that the choice between negotiated transfer...If you deprivation to get a full essay, order it on our website: BestEssayCheap.com

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