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Influence of Ethical Position and Information Asymmetry on Transfer Price Negotiations

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  • Karen Green
  • Benson Wier

Abstract

This study examines the potential effect of ethical position (EP) on negotiation strategies and behaviors in an intra-firm setting. We demonstrate that EP moderates the relationship between information asymmetry and the initial transfer price dispersion, or bluff during negotiations for individuals who are morally situational. Graduate business students participated in an experiment that randomized the level of information they could use in determining their initial asking price and their reservation price in a negotiation. This manipulation allows us to examine managements’ negotiation behavior when making an ethical judgment. Further, we relate their transfer price position to their EP that consists of two orthogonal factors, relativism and idealism. We find that access to the opposing division’s private information does not influence the initial transfer price  position of those who are relatively idealistic. Contrary to our hypothesis, these results suggest that during transfer price negotiations, those who are more relativistic will have a smaller initial transfer price dispersion than those who are relatively idealistic. This study provides evidence that EP plays an important role in transfer price negotiation behaviors.

Suggested Citation

  • Karen Green & Benson Wier, 2015. "Influence of Ethical Position and Information Asymmetry on Transfer Price Negotiations," Accounting and Finance Research, Sciedu Press, vol. 4(1), pages 1-30, February.
    • Handle: RePEc:jfr:afr111:v:4:y:2015:i:1:p:30
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    3. Chang, Linda & Cheng, Mandy & Trotman, Ken T., 2008. "The effect of framing and negotiation partner's objective on judgments about negotiated transfer prices," Accounting, Organizations and Society, Elsevier, vol. 33(7-8), pages 704-717.
    4. A. Greenfield & Carolyn Norman & Benson Wier, 2008. "The Effect of Ethical Orientation and Professional Commitment on Earnings Management Behavior," Journal of Business Ethics, Springer, vol. 83(3), pages 419-434, December.
    5. Bowles, Hannah Riley & Babcock, Linda & McGinn, Kathleen L., 2005. "Constraints and Triggers: Situational Mechanics of Gender in Negotiation," Working Paper Series rwp05-051, Harvard University, John F. Kennedy School of Government.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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