Rethinking Lintner: An Alternative Dynamic Model of Dividends

29 Pages Posted: 14 Jul 2006 Last revised: 4 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 25, 2007

Abstract

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

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

Larry Bauer (Contact Author)

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

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

Nalinaksha Bhattacharyya

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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