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

Question

Quizplus · Accepted Answer

The clientele effect refers to the idea that firms tend to attract and maintain a set of shareholders whose dividend preferences are similar to the firm's dividend policy. In other words, the firm's dividend policy serves as a mechanism for matching the preferences of its investors. As a result, changes in dividend policy may lead to changes in the composition of the shareholder base, as some investors may become dissatisfied and sell their shares while others may be attracted to the stock.

The Clientele Effect Refers to