How does the clientele influence dividend policy?

Question

Quizplus · Accepted Answer

The clientele effect theory suggests that different investors have different preferences for dividend policy, and companies may adjust their dividend policy to attract or retain certain types of investors. For example, retirees may prefer a stable dividend payout to provide a reliable income stream, while younger investors may prefer a lower dividend payout in order for the company to reinvest more profits for growth. Thus, the clientele effect encourages stability in dividend policy in order to meet the preferences of certain types of investors.

How Does the Clientele Influence Dividend Policy