clientele effect

(noun)

The theory that changes in a firm's dividend policy will cause loss of some clientele who will choose to sell their stock, and attract new clientele who will buy stock based on dividend preferences.

Related Terms

Examples of clientele effect in the following topics:

  • Impact of Dividend Policy on Clientele

    • The clientele effect is the idea that the type of investors attracted to a particular kind of security will affect the price of the security when policies or circumstances change.
    • These changes in demographics related to a stock's ownership due to a change of dividend policy are examples of the "clientele effect. "
    • The clientele effect's real world implication is that what matters is not the content of the dividend policy, but rather the stability of the policy.
    • Although commonly used in reference to dividend or coupon (interest) rates, the clientele effect can also be used in the context of leverage (debt levels), changes in line of business, taxes, and other management decisions.
    • Therefore, if a company discontinued paying dividends, the clientele effect may cause retiree shareholders to sell the stock in favor of other income generating investments.

  • Expected Dividends, No Growth

    • This suggests that a particular pattern of dividend payments may suit one type of stock holder more than another; this is sometimes called the "clientele effect. " A retiree may prefer to invest in a firm that provides a consistently high dividend yield, whereas a person with a high income from employment may prefer to avoid dividends due to their high marginal tax rate on income.
    • If clienteles exist for particular patterns of dividend payments, a firm may be able to maximize its stock price and minimize its cost of capital by catering to a particular clientele.

  • Value of a Low Dividend

    • According to the clientele effect, firms offering low dividend payout will attract certain investors who are looking for a long term investment and would like to avoid taxes.

  • Impact of Inflation on Inventory Management

    • Inflation's effects on an economy are various and can be simultaneously positive and negative.
    • Negative effects of inflation include an increase in the opportunity cost of holding money; uncertainty over future inflation which may discourage investment and savings; and if inflation is rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.
    • The two related effects are known as the Mundell-Tobin effect.
    • Unless the economy is already over-investing according to models of economic growth theory, that extra investment resulting from the effect would be seen as positive.

  • The Fisher Effect

    • The Fisher Effect relates nominal and real interest rates and we define the notation as:
    • We show the Fisher Effect Equation in Equation 1.
    • We can use the bond market to show the Fisher Effect.

  • International Fisher Effect

    • The Fisher Effect relates the nominal interest rate to the rate of inflation and real interest rate.
    • Many economists use algebra to reduce the Fisher Effect to Equation 16, which becomes an approximation.
    • The International Fisher Effect relates the real interest rate to a nominal interest rate in a foreign country.
    • We derive the International Fisher Effect with Equation 17.
    • The International Fisher Effect lets analysts and economists solve for equilibrium exchange rates.

  • Calculating Values for Different Durations of Compounding Periods

    • The effective annual rate (EAR) is a measurement of how much interest actually accrues per year if it compounds more than once per year.
    • Solving for the EAR and then using that number as the effective interest rate in present and future value (PV/FV) calculations is demonstrated here.
    • The effective annual rate for interest that compounds more than once per year.

  • Advantages of the Payback Method

    • Payback period as a tool of analysis is easy to apply and easy to understand, yet effective in measuring investment risk.
    • The payback period is an effective measure of investment risk.

  • Return on Total Assets

    • The return on assets ratio (ROA) measures how effectively assets are being used for generating profit.
    • ROA was developed by DuPont to show how effectively assets are being used.

  • Return on Common Equity

    • Return on equity (ROE) measures how effective a company is at using its equity to generate income and is calculated by dividing net profit by total equity.
    • It is a measure of how effective the equity is at generating income.