Clientele effect is a theory which affirms that the stock market price of a company could increase or decrease depending on the taxation, the distribution of the dividends and other company policies.

The investors are attracted by the company’s policies. Provided they change, the investors would react to these alterations by selling or buying stocks of the company. Hence, the price of the stocks would increase or decrease.

Example:

Think of a company that distributes very high dividends. This would lure investors that aim large incomes. Having more buyers, the price of the stocks will rise. However, if this company modifies its policy by decreasing the dividends, the investors would sell their stocks in order to find a company, more suitable to their requirements. Consequently, that could lead to a reduction in the stock prices.