Rethinking Lintner: An Alternative Dynamic Model of Dividends
29 Pages Posted: 14 Jul 2006 Last revised: 4 May 2021
Date Written: May 25, 2007
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