Question

What is the meaning of Tax Clienteles? (if possible, could you explain it with some examples?).And why is it hard to find Tax Clienteles in real business practices?

Answer 1

The tax clientele is the idea that the kind of investors and their expectations towards policies of security or investment. The clientele effect explains how changes in policies and market situations affect the price of a security. According to this effect, the demand for investment or security for investors cause a change in price.The clientele effect also thrives on the assumption that investors are stucked to the stock of a company because of the company’s policy and when there is a change in policy, the investors change their holdings causing price changes.

Suppose Firm A had been in a growth stage and did not offer dividends to its shareholders, but their policy changed to paying low cash dividends. Interpreting this decision as a sign of slowing growth. This set of clientele could choose to sell the stock. On the other hand, dividend payments could be prefrence for some investors who are interested in regular additional income from the investment, and they would buy Firm A's stock.

This decision making is difficult in real life because a company always analyse market on sample basis and there is no source of analysing every single investor and fulfilling their expectations on whole level. These samples can not give absolute assurance of right result, there is aways some uncertainty which can only be tackled through analysis on a whole level which is not possible and becomes hard to make decisions on sampling measures.