Implications of Principal-Agent Problem on the Transfer Pricing Theory

Abstract

This paper analyzes the implications transfer pricing mechanisms have on benefit measurement and management evaluation performance when agency problems (asymmetry information, moral hazard and adverse selection) and its consequences are incorporated. The aim of this paper is to show the relationship between transfer price policy and the agency problems and if it influenced those benefit compensations that graded managerial performance. This study relate correlation between motivation, independence, incentive and punishment schemes and agency costs with managerial performance and transfer prices, in particular. But provide that agency problem isn’t formalized in the academic literature, the study proposes a reference framework, characteristic of the agency relationship adding two components: performance measure and benefit levels.