The $-$Select$-$clienteleinformation $($signaling$)$cateringItem $7$ effect is the tendency of a firm to attract a set of investors who like its dividend policy. Firms have different groups of investors and they have different preferences, so a change in dividend policy might upset the majority group and have a negative effect on a firm's stock price. Therefore, a company should follow a stable, dependable dividend policy.

Some recent research related to behavioral finance suggests that investors' preferences for dividends vary over time. The $-$Select$-$clienteleinformation $($signaling$)$cateringItem $8$ theory suggests that investors' preference for dividends varies over time and that corporations adapt their dividend policy to accommodate the current desires of investors.

Give the correct response to the following question.

Electric utility companies have historically paid high dividends to their shareholders. Many retirees include the stocks of these electric utilities in their portfolios. On the other hand, biotechnology companies typically pay little or no dividends so they can reinvest for research and development. Many of the biotech company's stockholders are in their peak income$-$earning years. Which of the following dividend theories best explains these results?

$-$Select$-$Dividend irrelevance theoryTax preference theoryClientele effectCatering theory