Rethinking Lintner: An Alternative Dynamic Model of Dividends

29 Pages Posted: 18 Mar 2009 Last revised: 11 May 2021

See all articles by Larry Bauer

Larry Bauer

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Nalinaksha Bhattacharyya

University of Alaska Anchorage

Multiple version iconThere are 2 versions of this paper

Date Written: May 4, 2021

Abstract

For six decades empirical modeling of dividends has been dominated by the partial adjust-
ment model of Lintner (1956). Lintner's model su ers from the logical paradox that if companies
have target payout ratios, in the steady state those companies will have reached those target
ratios. Moreover, Bond and Mougoue (1991) demonstrate that Lintner's model is poorly spec-
i ed when earnings are serially correlated. We propose and test an alternative dynamic model
of dividend payout. Cross-sectional Tobit regression results are consistent with the predictions
of the model and time series tests show that the model succinctly describes the empirical data.

Keywords: Dividend Policy, Lintner Model, Empirical, Time Series, Dynamic Model, Cross-Sectional TOBIT Regression

JEL Classification: G30, G35, C21, C22, C31, C32, C33, C34

Suggested Citation

Bauer, Larry and Bhattacharyya, Nalinaksha, Rethinking Lintner: An Alternative Dynamic Model of Dividends (May 4, 2021). Available at SSRN: https://ssrn.com/abstract=1361725 or http://dx.doi.org/10.2139/ssrn.1361725

Larry Bauer

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, NL A1B 3X5
Canada
709-864-8512 (Phone)

Nalinaksha Bhattacharyya (Contact Author)

University of Alaska Anchorage ( email )

3211 Providence Drive
Anchorage, AK 99508
United States
(907)786 1949 (Phone)
(907) 786 4115 (Fax)

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