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 (R<sup>2</sup>) 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 (â) 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.

Dividend Payout Model on SOE (Go Public) in Indonesia

“…Based on the heteroscedasticity test, the probability value of all independent variables namely capital expenditure, Earnings per share is significant at levels below 5%, Capital expenditure is 0.0022, this shows that the owner of the company considers that there is a relationship between the company's investment opportunities as indicated by the amount of capital expenditure with the company's dividend payout ratio. Its relevance with Parasuraman and Ramudu [1] and Lintner [5] research, determining dividend payments are influenced by net income, debt and capital expenditure and not significance with Lambrecht and Meyrs [2].…”

“…Bodla, Karam and Sura with the assumption of the two previous models of Lintner and Brittain said dividend policy was influenced by earnings this year and dividends in the previous year, while depreciation and capital expenditure variables had no effect [7]. Bodla, et al research results are also strengthened by the existence of research from Parasuraman and Ramudu conducted in 2002 to 2011 registered at the BSE constituent, India by using the above modelling, the same results are obtained that dividend policy is influenced by earnings in this and dividends in the previous year while the depreciation and capex variables also have no effect [1]. Lambrecht and Meyrs, discovered a dividend payment model, the determination of dividend payments according to them was influenced by net income, debt and capital expenditure [2].…”

“…This is certainly a big problem for the government because being a driving factor for economic growth in Indonesia, SOEs are also expected to be able to contribute to the government by providing dividend payments which is it will be used to finance the State's financial needs for national development. Research by Parasuraman and Ramudu from 2002 to 2011 registered in the BSE constituent, India obtained results if the dividend policy was apparently influenced by earnings this year and dividends in the previous year, while depreciation and capital expenditure variables had no effect [1]. Lambrecht and Meyrs through their research entitled "A Lintner Model of Payout and Managerial Rents" said that in determining dividend payments are influenced by net income, debt and capital expenditure [2].…”

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“…Specifically, it tests the null hypothesis that all of the regression coefficients are equal to zero. Thus, F-value will range from zero to an arbitrarily large number (Parasuraman et al, 2012). If is rejected based on the F-test or p-values, then there is a presence of Granger-causality.…”