The clientele effect refers to ________.
A) the relevance of dividend policy on a firm's share value
B) a firm's ability to attract stockholders whose dividend preferences are similar to the firm's dividend policy
C) the informational content of dividends that helps in predicting the future earnings and growth of a firm
D) the "bird-in-the-hand" argument

Question

Quizplus · Accepted Answer

The clientele effect describes the phenomenon where firms attract shareholders with similar dividend preferences. For example, if a company has a consistent history of paying high dividends, it is likely to attract investors who prioritize regular income over long-term growth. On the other hand, firms that do not pay dividends or have a low dividend payout ratio are likely to attract investors who prioritize capital gains and are willing to take on more risk in exchange for potentially higher returns. Thus, firms tend to have a "clientele" of investors who are attracted to their dividend policy.

The Clientele Effect Refers to ________