Controlling Shareholders and Transfer Pricing Behavior in Emerging Markets

Abstract

Research Aim:
This study investigates how tax burden, tunneling incentives, and bonus mechanisms influence corporate transfer pricing decisions. The analysis is grounded in agency theory to explain how internal incentive structures shape related-party transactions.

Design/Methodology/Approach:
A quantitative research design was employed using panel data from companies in the raw materials, energy, and non-cyclical consumer sectors listed on the Indonesia Stock Exchange during 2019–2023. The sample consists of 27 firms selected through purposive sampling. Secondary data were obtained from audited financial statements and annual reports. The hypotheses were tested using panel data regression with Stata 18.

Research Findings:
The empirical results indicate that tunneling incentives significantly affect transfer pricing practices, suggesting that controlling shareholders may use related-party transactions to pursue private benefits. In contrast, tax burden and bonus mechanisms do not demonstrate a statistically significant association with transfer pricing decisions.

Theoretical contribution /Originality:
This study contributes to the agency literature by highlighting the dominant role of ownership-related incentives rather than tax pressure or managerial compensation in shaping transfer pricing behavior within an emerging market context.

Practical Implications:
The findings underscore the importance of strengthening corporate governance and regulatory oversight to mitigate opportunistic transfer pricing driven by concentrated ownership structures.

Research Limitations:
This study is limited to selected sectors and a five-year observation period, which may constrain generalizability. Moreover, the analysis focuses on a limited set of determinants and does not incorporate broader institutional or political factors that may further explain transfer pricing behavior