The clientele effect implies that firms must be sensitive to their investor clientele by avoiding changes to the dividend policy that attracted those investors.

Question

Quizplus · Accepted Answer

The statement is true. The clientele effect is the phenomenon whereby investors are attracted to particular firms based on the firm's dividend policy. If a firm were to change their dividend policy, they may risk losing their current investors and may fail to attract new ones. Therefore, firms should be sensitive to their investor clientele and avoid changes to their dividend policy that may negatively affect them.

The Clientele Effect Implies That Firms Must Be Sensitive to Their