AbstractStarting from the traditional Lintner model, an asymmetric model of dividend behaviour is derived. It allows both the speed of adjustment and the desired pay‐out structural parameters to vary according to firm‐ and time‐specific economic conditions. The model is then tested on a sample of large Italian quoted and non‐quoted firms. The main result of the econometric testing is that managers adjust more quickly when they have to reduce dividends than when they have to increase them. This finding is not consistent with the traditional view that firms are more reluctant to reduce than to increase dividends because of signalling problems. It is, however, consistent with the existence of a financial hierarchy. If internal sources of funds are cheaper managers will rationally adjust relatively quickly when they have to reduce dividends in order not to cut investment and will adjust relatively slowly when they have to increase them in order to build financial slack. One further interesting result observed is that quoted firms are found to fix a higher pay‐out ratio than non‐q