The Clientele Effect Does Not Imply That Either High or Low

question 32

True/False

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.

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Definitions:

Time To Maturity

The duration remaining until the final payment date of a financial instrument, such as a bond, at which point the principal is supposed to be paid back to investors.

Yield Differential

The difference in returns between two different investments, often used to compare the potential earnings from bonds of different countries.

Recessionary Periods

Recessionary periods are times of economic decline when there is a decrease in the gross domestic product (GDP), employment, and spending for two consecutive quarters or more.

Bond Ratings

An assessment of the creditworthiness of a bond issuer, reflecting the likelihood of the bond’s credit default, ranked by grade by credit rating agencies.