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The Effect of Framing and Compensation Structure on Seller's Negotiated Transfer Price

Dipankar Ghosh and Margaret N. Boldt
Journal of Managerial Issues
Vol. 18, No. 4 (Winter 2006), pp. 453-467
Stable URL: http://www.jstor.org/stable/40604553
Page Count: 15
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Effect of Framing and Compensation Structure on Seller's Negotiated Transfer Price
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Abstract

Prior management accounting research has investigated the effects of framing on decision makers' perceptions of problems and their judgments. Negotiation research suggests that the negotiator's perception of the negotiation situation may affect the negotiation outcome. Additionally, prior research has found that compensation structure is an important variable in explaining transfer pricing outcomes. The current research used an experiment to examine the effect of framing (i. e., positive, or profit made from negotiation, and negative, or profit forgone) on sellers' claimed shares of profit available from a transfer pricing transaction for two levels of compensation structure (i. e., high and low percent of divisional profit). The results show, using managers experienced with transfer pricing, that both negative framing and a larger bonus percentage based on divisional profit significantly enhanced sellers' claimed shares of the profit available from a transfer pricing transaction. However, compared to positive framing, negative framing makes the sellers less flexible. The reduced flexibility suggests that there may be more potential for conflict with negative goal framing than with positive goal framing.

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