If the clientele effect holds, then financial managers cannot increase the demand (and therefore the market value) of their firms' shares by increasing the rate of dividend payout.

Question

Quizplus · Accepted Answer

The clientele effect suggests that investors are attracted to companies whose dividend payout policies match their preference. Therefore, changing the dividend payout rate to attract a different group of investors (and thus potentially increase demand for the shares) may not be effective, as it could alienate the existing clientele without necessarily attracting a new one.

If the Clientele Effect Holds, Then Financial Managers Cannot Increase