Does Lintner's dividend model explain South African dividend payments?

Abstract

It is generally accepted that the payment of dividends is the most important and most widely used instrument for the distribution of value to shareholders. Shareholders also prefer to receive regular dividends rather than irregular cash payments. A well-known model that attempts to explain dividend policy is that of Lintner (1956). This study investigates whether Lintner's model can be used to explain South African dividend payments and compares this model with another, less sophisticated, model, namely the "percentage model". Lintner's model does not have a very good fit, probably as a result of the small sample used. Nearly half of the 200 largest companies that are listed on the Johannesburg Securities Exchange were excluded from the study as they were not listed for a sufficiently long period. Other companies were excluded on the grounds of having maintained their dividends on the same level for at least two consecutive years.