A Review of the Contemporary Transfer Pricing Literature with Recommendations for Future Research

SUMMARY A transfer price is a value placed on the goods or services which are traded between divisions of an organization. This paper attempts to make the subject of transfer pricing accessible to researchers and others interested in managerial problems so that a very real managerial problem can be studied in a broader managerial context. The not insubstantial literature that has grown up in the transfer pricing area is reviewed and, in particular, a critical evaluation of recent writings in the field is provided. It is shown that little which is unequivocal is known about transfer pricing and that the choices made by managers with regard to transfer pricing are little understood, both with regard to the factors which drive choice and the differences between choice in practice and theoretical interpretations. It is suggested that progress in the area will require a richer understanding of the realities confronting practising managers. Research by means of field studies, particularly case studies, is recommended to provide this. A series of hypotheses and issues, representing the dilemmas facing managers, is provided as a theoretical grounding for such research.