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Transfer Prices and Profit Maximization in Multinational Enterprise Operations

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  • D J Fowler

    (McGill University)

Abstract

Multinational enterprises are able to affect the profits reported by their subdivisions by altering transfer prices of goods shipped between affiliates. This paper shows that the profit maximizing price is a function of the level of ownership in the subsidiary, the dividend payout ratio of the subsidiary, the effective marginal tax rates in both parent and subsidiary countries, and the tariff on the goods transferred. In general, it is found that Multinational Enterprises appear to set transfer prices to Canadian subsidiaries so as to maximize the overall profits of the enterprise.©1978 JIBS. Journal of International Business Studies (1978) 9, 9–26

Suggested Citation

  • D J Fowler, 1978. "Transfer Prices and Profit Maximization in Multinational Enterprise Operations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 9(3), pages 9-26, September.
    • Handle: RePEc:pal:jintbs:v:9:y:1978:i:3:p:9-26
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    Cited by:

    1. Luis Alfonso Dau & Randall Morck & Bernard Yin Yeung, 2021. "Business groups and the study of international business: A Coasean synthesis and extension," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 161-211, March.
    2. Ghosh, Dipasri & Ghosh, Dilip K. & Zaher, Angie Abdel, 2011. "Business, ethics, and profit: Are they compatible under corporate governance in our global economy?," Global Finance Journal, Elsevier, vol. 22(1), pages 72-79.
    3. Borkowski, Susan C., 1997. "Factors affecting transfer pricing and income shifting (?) between Canadian and U.S. transnational corporations," The International Journal of Accounting, Elsevier, vol. 32(4), pages 391-415.

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