The Study on the Relationship between Transfer Pricing and Earnings Management

• Main Authors: Tsai, Lih-Wen, 蔡麗雯
• Other Authors: Chen, Ming-Chin, Ph.D
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/14429740426838128661

碩士 === 輔仁大學 === 會計學系碩士班 === 93 === In recent years, due to the rapid growth of global economy and the specialization in industrial structure, multinational enterprises have tried to utilize the internal resources optimally within the affiliated group, and they have also taken the advantages of transfer pricing practice to minimize their global taxes or to manage earnings. Although transfer pricing causes shifting earnings among affiliated companies, there is no empirical study that probes into the relationship between transfer pricing and earnings management. This study uses data of the listed companies of Taiwan Stock Exchange from 1996 to 2003 to empirically investigate into the relationship between transfer pricing and earnings management. By constructing regression models, this study explores the factors that affect the deviations in profits of transfer pricing transactions from those of non-related party’s transactions. Furthermore, this study further tests whether transfer pricing is a vehicle for earnings management. The results of this study are summarized as follows: 1.Companies which have higher return on assets (ROA), higher financial leverage (LEV), smaller capital size (SIZE), and higher cash flow from operating activities (OCF) tend to have higher deviations in profits of transfer pricing transaction from those of non-related party’s transactions. 2.We also find that companies that have various differences in profits between transfer pricing and non-related party’s transactions tend to have various discretionary accruals, predicting that management may use transfer pricing policy as a vehicle for earnings management.