Which of the following statements best describes the tax clientele argument?
A)Investors subject to high personal tax rates would prefer shares of companies that pay low dividends.
B)Investors subject to high personal tax rates would prefer shares of companies that pay high dividends.
C)Investors subject to high personal tax rates are indifferent to the dividend payout rate.
D)Investors subject to high personal tax rates would prefer shares of companies that promise low capital gains.

Question

Quizplus · Accepted Answer

The tax clientele argument suggests that investors will prefer stocks that align with their tax situation. Investors with high personal tax rates would prefer companies that pay low dividends to avoid the higher taxes on dividend income, thus favoring capital gains which might be taxed at a lower rate or deferred.

Which of the Following Statements Best Describes the Tax Clientele