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The Empirical Relationship between Dividends and Earnings in Germany
Behm, Ulrich | Zimmermann, Heinz
Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 113 (1993), Iss. 2 : pp. 225–254
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Behm, Ulrich
Zimmermann, Heinz
Abstract
The article analyses the relationship between dividends and earnings for 32 major German firms during the time period 1962 to 1988. There is strong evidence that managers try to "smooth" dividends with respect to earnings. The results are however less conclusive about the adjustment of dividends to a long term target payout ratio. While the traditional Lintner model fits the German data well, a simple generalization of the original equation produces unsatisfactory results. A possible explanation may be that the Lintner model is a misspecification of the dividend-earnings relationship, and that the implied long-term dividend adjustments is spurious.