Environmental uncertainty affecting inter-divisional conflicts in transfer pricing

Abstract

This study uses Duncan's (1968) definition of organizational environment which has been modified by Brownell (1985) and Hadley (1989) to examines the influence of environmental uncertainty on inter-divisional conflict transfer pricing. It is hypothesized that conflict in transfer pricing is high when the environment is highly uncertain. In contrast, conflict in transfer pricing is low when the environment is more certain. Data gathered by a survey questionnaire from a sample of divisional managers of a number of companies has been used to test the hypothesis. The result lend support to the hypothesis and carry implication for the design of management accounting system.