Lintner Model of Dividend Policy and its Relevance – Evidence from Bangladesh

Investigating the Lintner model and its relevance is still an active research agenda even after many years of its development. Since the 1950s and 1960s, lot of research arguments and counter arguments has been postulated regarding the irrelevance and relevance of dividend policies by different theories and models. The findings of these models are mixed and researchers have not yet find a consensus view on any of these models. But, Lintner (1956) model of smoothing is still considered as one of the benchmark models for the behavioural implication of dividends. It is argued that companies smooth dividends as dividends convey information. For smoothing dividends, current earnings and past year dividends are the two most crucial factors of consideration. A wide number of scholarly articles have acknowledged not only the significance of these factors but also the Lintner’s partial adjustment model. This paper was inspired from this phenomenon. The objective of the paper is to critically evaluate the Lintner model of smoothing for the 40 Bangladeshi sample companies. The sample period consists of 14 years (2000-2013). Based on empirical analysis, it is observed that most of the selected sample companies follow the Lintner’s partial adjustment model of dividend policy. Moreover, both current earnings and last year dividends are found to be significant determinants of dividend policy. It is found that empirically these variables of Lintner model have the predictability of 61.9% for Bangladeshi sample companies now as compared to the Lintner’s original finding of 85% for the US in 1950s. This paper has established an emerging country perspective on Lintner’s model.