| Clientele Effect | |
 The theory that a company's stock price will move according to investor demand and goals when a tax, dividend, or other policy change affects the company. |
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 The clientele effect assumes that investors are attracted to different company policies, and that when the company policy changes, investors will adjust their stock holdings accordingly. As a result of this adjustment, the stock price will move. Consider a company who currently pays a high dividend and has attracted clientele whose investment goal is to obtain stock with a high dividend payout. If the company decides to decrease their dividend, these investors will sell their stock and move to another company that pays a higher dividend. As a result, the company's share price will decline. |
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 How and Why Do Companies Pay Dividends? - Explore arguments for and against company dividend policy, and learn how companies determine how much to pay out. |
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