Research On The Internal Transfer Pricing Method In Enterprise Groups

Transfer pricing is a corporate governance issue which cannot be ignored. With the development of economic globalization, a growing number of enterprise groups make use of transfer pricing to increase the efficiency of corporate governance and reduce production costs. Especially for the large enterprise group engaged only in domestic trade, the transfer price is an important part of financial management and cost management, and the transfer pricing making has been the focus of attention of senior finance staff. In the transfer pricing practice, faced with the interests and constraints from all respects, enterprise groups are often difficult to work out ideal internal transfer prices. In the development process, enterprise groups need to take into account the internal and external environmental factors, and possible mutually contradictory objectives in business development process, as well as better incentive measures to stimulate internal operation on the premise of the equity principle. Therefore, a successful internal transfer price should be not only adapted to long-term development needs of the enterprises themselves, but also avoid defects caused by unreasonable transfer pricing as far as possible.This dissertation will take the principal - agent theory, asymmetric information theory and contingency theory as the theoretical basis of the internal transfer pricing, study the effect of internal transfer pricing on enterprise groups,mainly on investment decisions and performance evaluation. This dissertation then will consider various factors in analyzing the development of internal transfer pricing, including the enterprise group's internal and external environmental factors, based on which the dissertation discusses some kinds of internal transfer pricing strategies currently and generally used by enterprise groups, and choose a reasonable and effective internal transfer pricing strategy by combining with characteristics of different kinds of enterprise groups and comparing thses strategies. For the Centralized Enterprise Group, cost-oriented transfer pricing strategy is usually the first choice for manager, but there are also companies using negotiating pricing way to determine the transfer price of insider trading. For the decentralized enterprise group, since insider tradings of holding enterprise groups are often involved in capital market transactions, there will be unfair transfer pricing of related party transactions, in which case the principle of fair pricing should be followed and the market-oriented transfer pricing strategy should be used as far as possible. For the industry-based group, because of the different right dispersion levels of enterprise groups,the continuous changing of internal and external environment,the right checks and balances between the various departments and other dynamic factors, the formulation of internal transfer pricing becomes more complicated. In this dissertation, a simple game model is used to compare and analyze market-oriented and cost-oriented strategies, finding that cost-oriented strategy is one internal transfer pricing strategy mostly suitable for the industrial enterprise groups. Finally, this paper takes Shanghai Automotive Industry Corporation (Group) for example, analyzing internal transfer pricing choice. In the analysis of specific cases, we find that as the decentralizing degree of enterprise groups is continuously improved, a single internal transfer pricing strategy is no longer suitable for the overall long-term development of enterprise groups, so how to more effectively integrate a variety of internal transfer pricing will be the direction of future research.