Participation in Transfer Pricing: The Role of Affective and Cognitive Mechanisms

This study examines how transfer pricing participation is related to satisfaction and organizational outcome. We propose and test a structural equation model that includes both direct and indirect links between participation and organizational outcome which is measured by transfer pricing effectiveness and firm performance. Based on the data collected from a cross-sectional survey of subsidiary/division managers in China and applying the structural equation modeling technique, we find that transfer pricing participation affects transfer pricing effectiveness not only directly but also indirectly through both affective and cognitive mechanisms as intervening variables. However, we do not find any direct impact of transfer pricing participation on firm performance. Transfer pricing participation affects performance only indirectly through affective and cognitive mechanisms. The findings of this study contribute to the accounting literature and enhance our understanding of participation behavior and its consequences in transfer pricing decisions.