The clientele effect does not imply that either high or low dividends are optimal,rather that firms should not make significant and arbitrary changes in their existing dividend policy.

Question

Quizplus · Accepted Answer

The statement accurately describes the clientele effect, which suggests that investors are attracted to a company's dividend policy based on their individual preferences for either high or low dividends. However, the effect does not imply that one type of dividend is inherently better than the other or that firms should make drastic changes to their dividend policy without considering the potential impact on shareholders. Rather, the best approach is for firms to maintain a consistent and reasonable dividend policy that reflects their financial performance and goals over time.

The Clientele Effect Does Not Imply That Either High or Low