Examining Application of Lintner’s Dividend Model in Indian Banking Industry

B S Bodla, Karam Pal and Jasvir S Sura

The IUP Journal of Bank Management, 2007, vol. VI, issue 4, 40-59

Abstract: The present paper is an attempt to re-examine the applicability of Lintner’s (1956) dividend policy in banking sector in India. The banks, listed on any of the Stock Exchange in India, constitute the sample for the present study. Here, a cross-sectional analysis have been carried out from the year 1996 to 2006 across ownership pattern of banks in India. The results are found in line with the Lintner model. The findings offer evidence that the dividend policy of Public Sector Banks (PSBs) is more stable than that of Private Banks (PBs). The results indicate that the major determinants of current dividend are lagged dividend and the current earnings in case of both PSBs and PBs. The above evidence is almost similar to those markets in developed countries such as the US. The study is also found giving support to the argument of ‘information content of dividend’ in the context of dividend proceeds. Hence, dividend policy can be used as a signaling device by the managements of banks.

Date: 2007
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