Foreign ownership and transfer pricing: the moderating role of earnings management

Abstract

Purpose- This study examines the effect of foreign ownership on transfer pricing practices and the moderating role of earnings management in the relationship between foreign ownership and transfer pricing.

Design/methodology/approach- A quantitative approach was employed. The population consists of manufacturing companies in the basic industrial and chemical sectors listed on the Indonesia Stock Exchange (IDX) from 2022 to 2024. Using purposive sampling, a final sample of 25 companies was selected from an initial 40. Secondary data were obtained from the IDX, and panel data regression analysis was conducted using EViews 13.

Findings- The results indicate that foreign ownership has a positive and significant effect on transfer pricing. However, earnings management does not have a significant direct effect on transfer pricing, nor does it moderate the relationship between foreign ownership and transfer pricing practices. While foreign ownership and earnings management jointly have a significant impact on the overall model, earnings management alone does not contribute to or modify the observed relationship.

Originality/value- This study contributes to the literature by specifically examining the moderating role of earnings management in the foreign ownership–transfer pricing nexus among Indonesian manufacturing firms, an underexplored area in emerging market settings.