Rethinking Lintner: An Alternative Dynamic Model of Dividends

For six decades empirical modeling of dividends has been dominated by the partial adjustment model of Lintner (1956). Lintner's model suffers 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 specified 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 Modeling, Time Series, Cross-Sectional TOBIT Regression

JEL Classification: G35, C21, C22

Suggested Citation: Suggested Citation

Bauer, Larry and Bhattacharyya, Nalinaksha, Rethinking Lintner: An Alternative Dynamic Model of Dividends (May 25, 2007). Second Singapore International Conference on Finance 2008, Available at SSRN: https://ssrn.com/abstract=914197 or http://dx.doi.org/10.2139/ssrn.914197