Different investor groups have differing dividend policy preferences that creates clientele effects in which dividend policy of a firm is optimized for its investors.

Question

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Different investors have different preferences for dividend policy, such as those who prioritize receiving regular income versus those who prioritize long-term growth. To attract and retain investors, companies may tailor their dividend policies to appeal to different groups, resulting in clientele effects.

Different Investor Groups Have Differing Dividend Policy Preferences That Creates