Model 2: The Model of Lintner
Lintner made a model in which he tries to explain distribution policy adopted by some of the dividends leaders. His model is based on questionnaires conducted with 28 management teams of U.S. companies (Sullivan 2003, p. 278). Lintner tests over the period 1918-1941, show that model explains about 85% of changes in dividends. The average speed of adjustment ci is 30% per year and the ratio of target distribution is 50%.
It shows that the dividend policies of companies are varied, however, there are common denominators in responses on the questionnaires, which has the following conclusions:
• Corporate Finance Managers are far more interested in the distribution rate that amount of the dividend.
• Most Corporate Finance Managers avoid changing the rate if uncertain to keep the medium and long term (Sullivan 2003, p. 281).
• The requirements of the investment policy do not influence general policy of distributing dividends.
These findings show that managers are trying to establish some relationship between the rate of dividend distribution and the benefits. It shows that dividends are linked to profits in the long term and that companies follow a target dividend payout ratio. It also notes that the leaders of the companies pay a lot significant variations in the dividend over the years before, they use the dividend as a signal of growth prospects of the company and it has informational content.