A Lintner Model Of Dividends And Managerial Rents

The authors develop a model where dividend payout, investment and financing decisions are made by managers who attempt to maximize the rents they take from the firm. But outside shareholders can intervene if rents are too high and dividends too low. The threat of intervention constrains rents and forces rents and dividends to move in lockstep. Managers are risk-averse, and their utility function allows for habit formation. The authors show that dividends follow Lintner's (1956) target-adjustment model. The authors provide closed-form, structural expressions for the payout target and the partial adjustment coefficient.