The clientele effect is the idea that the set of
investor
An investor is a person who allocates financial capital with the expectation of a future Return on capital, return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some specie ...
s attracted to a particular kind of
security" \n\n\nsecurity.txt is a proposed standard for websites' security information that is meant to allow security researchers to easily report security vulnerabilities. The standard prescribes a text file called \"security.txt\" in the well known locat ...
will affect the
price
A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in t ...
of the security when policies or circumstances change.
For instance, some investors want a company that doesn't pay dividends but instead invests that money in growing the business, whereas other investors prefer a stock that pays a high dividend, and still others want one that balances payout and reinvestment. If a company changes its
dividend policy Dividend policy is concerned with financial policies regarding paying cash dividend in the present or paying an increased dividend at a later stage. Whether to issue dividends, and what amount, is determined mainly on the basis of the company's un ...
substantially, it is said to be subject to a clientele effect as some of its investors (its established clientele) decide to sell the security due to the change. Although commonly used in reference to dividend or coupon (interest) rates, it can also be used in the context of leverage (debt levels), changes in line of business, taxes, and other aspects of the company.
Overview
The clientele effect refers to the idea that certain types of investors are attracted to particular types of securities or investment vehicles. For example, a company that issues a high-yield bond may attract a different type of investor than a company that issues a low-risk, low-yield bond.
The clientele effect refers to the idea that certain types of investors are attracted to particular types of securities or investment vehicles. For example, a company that issues a high-yield bond may attract a different type of investor than a company that issues a low-risk, low-yield bond.
For investors, it can be important to consider the types of securities that are likely to appeal to their desired clientele. For example, an investor who is looking for a stable, low-risk investment may be more likely to choose a bond issued by a stable, financially sound company, while an investor who is willing to take on more risk in exchange for the potential for higher returns may be more interested in a high-yield bond.
For companies, the clientele effect can be an important consideration when deciding on the types of securities to issue.
References
External links
''Clientele effect'' on Investopedia
{{econ-stub
Stock market