Does Lintner Model Of Dividend Payout Hold Good? An Empirical Evidence From BSE SENSEX Firms

Abstract

This study primarily investigates into as to what influenced the dividends payment of BSE constituent companies for the years 2002 through as latest as 2011. The primary model used is that of Lintner (1956) with addition of relevant factors. The study tests three models including Lintner's basic model. While dividends paid is criterion variable in all the models, basic earnings and lagged dividends are predictor variables in the first model (Lintner model, 1956), cash earnings and lagged dividends in the second model and growth opportunities (depreciation and capital expenditure) in the third model are the predictor variables. The study tests the hypotheses if the dividends paid (criterion variable) depended on basic earnings, lagged dividends, cash earnings and capital expenditure. The multiple regression analysis has been performed using SPSS 15.0 version through ENTER method for every year and for all the years on an aggregate basis across the sample companies. Significance 'F' revealed that in all the three models dividends paid depended significantly (at 5% significance level) on all predictors variables. The value of multiple 'R' indicated that the models were very strong. Coefficient of determination (R2) also revealed that the explained portion of the relationship between criterion and predictor variables has been very high and significant enough to accept the model fit. However, standardized beta co-efficients (í¢) and 't' statistic revealed that basic earnings, cash earnings and lagged dividends exercised highest impact on dividends paid in most of the years during the study period. On the other hand, other predictor variables, depreciation and capital expenditure, did not have any significant impact on the dividends paid. The Durbin Watson coefficient indicated that multi co-linearity among predictor variables was strong enough to accept the validity of the model almost during the entire period of the study. Thus, the results and findings of the study support the prevalence and relevance of Lintner model of dividend policy. This means that the finance manager can't afford to ignore the variables like earnings capacity and lagged dividends while framing a dividend policy.