A portfolio of empirical tests evaluating the transfer price performance of "pure" wholesale distributors.
Item
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Title
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A portfolio of empirical tests evaluating the transfer price performance of "pure" wholesale distributors.
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Identifier
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AAI9405568
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identifier
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9405568
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Creator
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O'Haver, Robert Russell.
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Contributor
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Adviser: David Gabel
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Date
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1993
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance | Economics, Commerce-Business
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Abstract
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In this dissertation I empirically evaluate two* topics that are germane to transfer pricing (i.e., the price by which related corporations exchange property, assets and/or services). These issues pertain to the exchange of tangible property between a manufacturer and related distributor. Typically, in an "inbound" transfer pricing investigation undertaken by Internal Revenue Service economists, the profit and/or rate of return performance of the related U.S. distributor is evaluated against the performance of functionally comparable, but unrelated, distributors. If, for example, the related distributor under review earns less than that of the comparable companies, the transfer price paid by the U.S. distributor to its foreign parent is deemed to be excessive (i.e., the U.S. distributor is giving away too much taxable income to the overseas parent corporation).;The first topic evaluates how useful aggregate Standard Industrial Classification ("SIC") data are for benchmarking (i.e., applying a measure to evaluate the transfer price) purposes. This effort follows and extends upon, the work of other economists who have studied how well-suited SIC classifications are for delineating economic markets. I find that four digit distributor SIC codes possess too much functional diversity to be very useful for transfer pricing analysis. Further, I find there to be significant differences in profits and rates of return between "pure" distributors and distributors that also manufacture and/or are involved in design, research and development, and/or developing marketing intangible assets (e.g., tradenames).;The second topic involves using a constructed data set of financial performance results for "pure" distributors to find the key determinants of their operating profit as well as the incidence of operating loss. Using cross-section and pooled regression techniques, as well as various binary choice models, I find important independent variables to be the growth in sales, level of industry concentration, firm size, and the presence of high operating leverage when sales growth is high. The choice of these variables follows on earlier work by other economists, albeit these other economists have largely focused on manufacturing industries. The import of these results is to document that there are many variables, other than transfer price, which can affect profit (or cause an operating loss) for a U.S. based "pure" distributor of an overseas parent.;Related to this issue is the question, explored by Fisher and others, as to how well accounting rate of return serve as proxy measures for economic rates of return. Little empirical work has been done on this topic germane to "pure" distributors. My results suggest that, under certain conditions, these two performance rates can converge for "pure" distributors. ftn*A third topic, which is presented in the appendix of the dissertation due to the inconclusive results, focuses on a pricing methodology known as "profit splits" applied to the licensing, between related entities, of intangible assets. Specifically, I apply event studies, a recent technique popular in the Industrial Organization literature, on actual licensing transactions between unrelated parties to observe the resultant ex-ante profit splits. Due to the small sample, no consistent findings are derived (though the concept has, I believe, enough appeal that more testing should be undertaken as more data become available).
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
