A Lintner Model of Payout and Managerial Rents

61 Pages Posted: 16 Mar 2010 Last revised: 16 Jan 2012

Bart M. Lambrecht

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Stewart C. Myers

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

Multiple version iconThere are 2 versions of this paper

Date Written: July 5, 2011

Abstract

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.

Keywords: payout, investment, financing policy, agency

JEL Classification: G31, G32

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: https://ssrn.com/abstract=1571081 or http://dx.doi.org/10.2139/ssrn.1571081

Bart Lambrecht (Contact Author)

University of Cambridge - Judge Business School ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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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)

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Cambridge, MA 02138
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