By calling the additional dividend an extra dividend, a firm avoids setting expectations that the dividend increase will be permanent.

Question

Quizplus · Accepted Answer

By using the term "extra dividend" instead of "permanent dividend increase", the firm signals to its shareholders that the payout is a one-time event and not an ongoing commitment. This helps to prevent expectations for future dividend payments at the same level, which could be difficult to sustain if business conditions change.

By Calling the Additional Dividend an Extra Dividend, a Firm