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A Lintner Model of Payout and Managerial Rents

Bart M. Lambrecht

University of Cambridge - Judge Business School; Lancaster University - Management School

Stewart C. Myers

Massachusetts Institute of Technology (MIT); National Bureau of Economic Research (NBER)

July 5, 2011

Journal of Finance, Forthcoming
AFA 2011 Denver Meetings Paper

We develop a dynamic agency model where payout, investment and financing decisions are made by managers who attempt to maximize the rents they take from the firm, subject to a capital market constraint. Managers smooth payout in order to smooth their flow of rents. Total payout (dividends plus net repurchases) follows Lintner's (1956) target-adjustment model. Payout smooths out transitory shocks to current income and adjusts gradually to changes in permanent income. Smoothing is accomplished by borrowing or lending. Payout is not cut back to finance capital investment. Risk aversion causes managers to underinvest, but habit formation mitigates the degree of underinvestment.

Number of Pages in PDF File: 61

Keywords: payout, investment, financing policy, agency

JEL Classification: G31, G32

working papers series

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Date posted: March 16, 2010 ; Last revised: January 16, 2012

Suggested Citation

Lambrecht, Bart M. and Myers, Stewart C., A Lintner Model of Payout and Managerial Rents (July 5, 2011). Journal of Finance, Forthcoming; AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1571081 or http://dx.doi.org/10.2139/ssrn.1571081

Contact Information

Bart Lambrecht (Contact Author)
University of Cambridge - Judge Business School ( email )
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44-(0)-1223-339700 (Phone)
44-(0)-1223-339701 (Fax)
Lancaster University - Management School ( email )
Lancaster, LA1 4YX
United Kingdom
Stewart C. Myers
Massachusetts Institute of Technology (MIT) ( email )
Sloan School of Management
Cambridge, MA 02142
United States
617-253-6696 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  72
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