What is Lintner'S Model?
2670 reads · Last updated: December 5, 2024
The Lintner model is an economic formula for determining an optimal corporate dividend policy. It was proposed in 1956 by former Harvard Business School professor John Lintner and focuses on two core notions:Though originally a descriptive model intended to explain how firms are observed to set dividends, the model has also been used as a prescriptive model of how firms should set dividend policy.
Definition
The Lintner Model is an economic formula used to determine a company's optimal dividend policy. It was proposed by former Harvard Business School professor John Lintner in 1956, focusing on two core concepts: how companies set dividends and how they formulate dividend policies.
Origin
The origin of the Lintner Model dates back to 1956 when John Lintner introduced it while studying corporate dividend behavior. Through empirical research on various companies, Lintner identified patterns in how firms set dividends and summarized them into a formula.
Categories and Features
The Lintner Model is divided into descriptive and prescriptive models. The descriptive model explains how companies set dividends, while the prescriptive model guides how companies should formulate dividend policies. Its features emphasize stable dividend policies and gradual adjustment strategies to avoid significant market disruptions.
Case Studies
A typical case is Procter & Gamble, which has long adopted a stable dividend policy, aligning with the Lintner Model's theory. Another example is Coca-Cola, whose dividend policy reflects a gradual adjustment strategy, ensuring stable returns for shareholders.
Common Issues
Common issues investors face when applying the Lintner Model include accurately predicting a company's earning capacity and balancing dividends with reinvestment. A common misconception is that a high dividend payout is always better than a low one, overlooking the company's long-term growth potential.
