According to the clientele effect,
A) companies should have dividend payout ratios of either 100% or 0%.
B) companies should avoid making capricious changes in their dividend policies.
C) companies should change their dividend policies to please their target group of investors.
D) even if capital markets are perfect, dividend policy still matters.

Question

Quizplus · Accepted Answer

The clientele effect suggests that investors have different preferences for companies based on their dividend policies. Therefore, companies should avoid making sudden, unpredictable changes to their dividend policies, or risk alienating their target investors. This is in line with choice B which suggests that companies should avoid such capricious changes in their dividend policies to maintain their investor base.

According to the Clientele Effect