The Unintended Consequences of Headquarters’ Involvement in Decentralized Transfer Price Negotiations : Experimental Evidence

Arnold, Markus Christopher; Elsinger, Florian; Rankin, Frederick W. (September 2017). The Unintended Consequences of Headquarters’ Involvement in Decentralized Transfer Price Negotiations : Experimental Evidence (Submitted) The Accounting Review

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This study investigates how headquarters involvement affects the efficient coordination of internal transfers in decentralized transfer price negotiations. Prior research explores decentralized managers who negotiate transfer prices autonomously. However, evidence suggests that headquarters can become involved in transfer price negotiations, particularly after negotiation failure. While the intention of headquarters involvement is to overcome inefficiencies arising from decentralized managers’ inability to agree on a transfer price, we suggest that such involvement is likely to have the unintended consequences of further reducing both agreement frequency and the coordination efficiency of negotiated transfer pricing. Reduced agreement is likely to occur because decentralized managers are likely to feel less responsible for the negotiation outcome and may be overly optimistic about headquarters’ decision. Reduced efficiency is likely to result because misattribution and overconfidence are likely to make headquarters attribute negotiation failure to the wrong cause and to discount or ignore information from the negotiation. In an experiment, we manipulate whether headquarters involvement is absent versus present. Nested within headquarters involvement present, we manipulate the degree of headquarters involvement as either “weak” or “strong”. Consistent with our predictions, we find that headquarters
involvement reduces the frequency of negotiation agreement and the coordination efficiency of transfer pricing. Additionally, we find that efficiency is reduced even more when headquarters involvement is strong rather than weak. We contribute to the research on negotiated transfer pricing by providing evidence about headquarters’ biased perceptions of negotiation impasse and the unintended consequences of its involvement.

Item Type:

Working Paper


03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute for Accounting and Controlling > Managerial Accounting

UniBE Contributor:

Arnold, Markus Christopher, Elsinger, Florian


300 Social sciences, sociology & anthropology > 330 Economics
600 Technology > 650 Management & public relations


The Accounting Review




Alexandra Neuenschwander

Date Deposited:

17 Sep 2018 15:04

Last Modified:

05 Dec 2022 15:17




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