Business, Legal & Accounting Glossary
1. The tendency for investors with similar strategies to invest in securities and companies that meet a certain set of criteria, especially in terms of financing. For example, investors looking for companies with low amounts of debt will flock toward companies that do not use much leverage. If a company changes its financing or debt policy then most people belonging to this category of investors are likely to sell their stake. 2. A theory suggested to explain stock price movement resulting from investor reactions to changes in a company’s policies. For example, if a company adopted a high-paying dividend payout ratio, then investors preferring to receive higher dividends will purchase more of the company’s shares, thereby increasing the company’s stock price. The clientele effect assumes investors are partial to a company’s policies and that changes will result in the purchase or sale of the underlying company’s stock based upon the investor’s preferences.
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This glossary post was last updated: 20th November, 2021 | 0 Views.