Special Dividend Announcements: A Canadian Perspective

Event Study Analysis Report

BUSI 4500A Carleton University Submitted to Sana Mohsni 4/8/2013

Authors Christina Bakhos Eric Crowley Eddy Dostal Katarzyna Gnatek John Harvey 10079694 100791435 100639011 100795176 100787004

Past studies indicate that the initiation of a special dividend results in a positive effect on the price of stock for the issuing firm around the time of the announcement. The purpose of this paper is to extend such studies to a more recent period of time while focusing on the Canadian stock market as a topic of interest.

Table of Contents
1.0 Abstract ................................................................................................................................................ 3 2.0 Introduction and Motivation ............................................................................................................... 3 3.0 Literature Review ................................................................................................................................. 4 3.1 Regular Dividends .................................................................................................................... 5 3.2 Special Dividends ..................................................................................................................... 7 4.0 Key Research Question ...................................................................................................................... 12 4.1 Hypothesis ............................................................................................................................. 13 5.0 Data Collection and Methodology ..................................................................................................... 13 6.0 Signaling Effect ................................................................................................................................... 17 7.0 Regression Results.............................................................................................................................. 18 7.1 Capital Structure: Debt to Equity .......................................................................................... 19 7.2 Return on Assets .................................................................................................................... 21 7.3 Current Ratio .......................................................................................................................... 23 7.4 Return on Capital ................................................................................................................... 26 7.5 Two Period Analysis ............................................................................................................... 29 7.6 Market Capitalization ............................................................................................................. 30 8.0 Limitations and Considerations for Future Research 8.1 Special Dividend Data ............................................................................................................ 31 8.2 Long Term Effects................................................................................................................... 31 8.3 Variables ................................................................................................................................ 32 8.4 Signaling ................................................................................................................................ 32 9.0 Conclusion .......................................................................................................................................... 33 10.0 Appendix .......................................................................................................................................... 35 11.0 Bibliography ..................................................................................................................................... 44

1.0 Abstract
Whilst previous studies have focused on the impact of special dividend announcements on U.S. firms, this paper will attempt to make similar observations on Canadian firms traded on the Toronto Stock Exchange. Past literature has determined that the announcement of a special dividend has a positive abnormal return on equity prices on the one day period. The hypothesis; Ha: there are abnormal returns associated with Canadian special dividend announcements, was thus accepted over the null hypothesis. The results obtained are therefore consistent with previous studies: significant positive abnormal returns for stocks trading on the TSX occur on the announcement date. The cumulative average abnormal returns for the Canadian firms involved in this study were 1.75% whereas a return of 3.43% was discovered in similar studies on U.S. firms. The positive abnormal returns do not continue past the one day period thus holding the strong form of market efficiency hypothesis to be true. This was done by creating a window of 847 trading days prior to the announcement as an estimation period. In order to develop an analysis as to what factor/s determine whether a firm will exhibit abnormal return on the date of announcement, it was determined that firms with an ROA of 10 % a year prior to the announcement exhibited significantly positive abnormal returns on the day of. Finally, although there seemed to be a relationship between abnormal returns and firm size, the regression results provided very little statistical significance in support for this relationship.

2.0 Introduction and Motivation

Although the focus of this study will pertain to special dividend paying firms, it is imperative to describe and explain the importance of a regular dividend payment as an opening. A dividend is a cash payment made to shareholders usually issued on a monthly, quarterly or yearly basis. Quite frequently, firms which initiate dividends try to maintain the payments

throughout the companys life. As described in a study by Dhillion (1994), initiations of dividends and dividend increases are associated with positive market returns and strong firm performance. Dividend initiations are usually a signal that a firm is transitioning from the growth phase to a steady phase. Bulan (2007) stated that major characteristics of dividend initiators are low growth rates, high profitability and high cash balances The goal of this study is to determine whether the announcement of a special dividend payment contributes to any abnormal return following the event. When a firm does not want to maintain a payment schedule, it can issue a special dividend. This is different from issuing a regular dividend as it is a onetime cash payment made to shareholders (Walter, 1956). Dividend paying firms are notably large capitalization firms with high cash balances. Previous research done by DeAngelo et al. (2000) revealed that abnormal returns occur in the short term upon the announcement of a special dividend paid to shareholders. This paper will continue to examine the special dividend announcement with respect to Canadian stocks. There is currently no major research that documents the existence or effects of special dividend announcements for Canadian Firms. There is also little research regarding the share price reactions of firms with different market capitalizations. An event study analysis will be conducted using common stocks exchanged on the Toronto Stock exchange in order to investigate the effects of special dividend announcements. This paper will determine whether a difference in returns exists between market capitalization and whether variables such as ROA, ROC, and D/E have any relationship with the Canadian special dividend announcing firms.

3.0 Literature Review

The proceeding review consists of existing literatures which analyze the impact of regular and special dividends, with a focus on the latter. The majority of the studies reviewed came to the conclusion that there are positive abnormal returns associated with firms that announce a special dividend payment to shareholders. The literature also examines possible explanations for why firms decide to pay special dividends instead of regular dividends or conduct share repurchases. Other studies offer some possible predictive measures that investors can use to assess the likelihood that a special dividend will occur in a firms near future, and thus profit from the potential abnormal returns.
3.1 Regular Dividends

A firms decision to reduce its free cash flow capacity through the payment of dividends has been notably used as a signal for a companys future performance. Although dividend payment announcements are typically known to have positive impacts on stock price; a firm should invest in a positive NPV project and withhold dividend payments if the firm is experiencing a limit in free cash flow due to the dividend obligation. Otherwise, a negative impact on price will be realized (Fairchild, 2010). Investors react more dramatically to negative dividend changes than they do to dividend increase. This phenomenon needs to be taken into account when deciding to decrease or cease a dividend payment (Denis & Sarin, 1994). When managers initiate dividends, they must believe that they have sufficient long term cash flows in order to continue to meet dividend payments. If this statement is true, dividend changes should be related to the changes in the firms earnings. Pettit (1972) studied various dividend changes to see if these changes were related to the previous earnings announcements; as well as the reaction of the stock price upon the announcements. His findings suggest that a substantial portion of the change in stock price is attributed to the announcement of the dividend.

A stock with positive earnings that made a large dividend cut experiences price declines leading up to the dividend announcement; then continues to decline in the months following. This differs to a large dividend cut on a company that has had negative earnings. The performance leading up to the cut was similar; however, after the dividend cut these firms saw their stock increase in value in the months following (Pettit, 1972). Although earnings are related to cash flow, they can be manipulated by various accounting practices. Cash flow is a more predominate indicator of dividend sustainability than earnings. As will be examined later within this study, some researchers associate dividend announcements with a signaling hypothesis. Managers use dividends as a way to convey information to shareholders about the future cash flows of the firm. Some shareholders may prefer the firm to payout the excess cash flow as a dividend payment, while others would prefer the firm to use the excess cash flow for profitable projects. Tobins Q is used as a proxy to decipher between firms with positive investment opportunities (high Q) and firms with no positive investment opportunities (low Q). It is assumed that investors would react more positively to a dividend increase, special dividend or dividend initiation from a low Q firm than they would from a high Q firm. This is because investors should prefer the high Q firm to reinvest its cash flows into value maximizing projects rather than cash payments to shareholders. Cash payments should be preferred by shareholders of low Q firms because these firms do not have value maximizing projects available. Investors would be able to use the excess cash flow of low Q firms more efficiently than the firm itself. However, no significant difference was found for the abnormal returns associated with dividend announcements from low Q and high Q firms (Howe, 1992). A later study conducted by David et al. (1994), found that low Q firms in fact had different results from the high Q firms. The results showed that low Q firms actually did

experience higher abnormal returns after announcing dividend increases than high the Q firms did. However, they did not find any significant difference surrounding dividend decreases. It is also found that analysts revised their EPS estimates for a firm by an average of 2.9% in the direction of the dividend change which provides support for the information content of dividend changes. When considering the general characteristics of firms that decide to pay dividends, Bulan et al. (2007) found that dividend initiators are generally large firms with relatively high profitability, high cash balances and low growth rates. The systematic risk was observed to have very little change before and after dividend initiation. It was found that the higher the dividend premium, the higher the abnormal return on the announcement date. Stock prices of initiators are also subjected to a more positive announcement effect. Since there are neither earnings nor growth increases and systematic risk did not decline, a possible reason for the positive reaction to dividend initiation may have been improved investor sentiment (a premium investors pay for dividend paying stocks).
3.2 Special Dividends

The topic of signaling, which asserts that positive information about the firms f uture earnings are potentially embedded within the dividend policy, has been a heavily studied topic. However, not as much research has been dedicated to the signaling hypothesis for Canadian special dividend paying firms. The main difference between an increase in a regular dividend payment and a special dividend payment is that the regular dividend payment signals long term earning growth, whereas special dividends are a one-time payment and thus exhibit short term earnings growth. Companies initiating a regular dividend will therefore exhibit long term earnings growth whereas those releasing a special dividend will only experience temporary growth (Lie, 2000).

The study conducted by DeAngelo (2000) further explores reasons why special dividends were once a very common payment to investors but are now less common. The researchers found that dividends can be a useful method of corporate signaling only when they send a clear message, and that special dividends have become so common for many firms that they essentially converged to common shares, and thus lost their unique signaling power. The study also states that the market reacts favorably to the declaration of special dividends in general, but that the relative increase or decrease in specials versus previous special dividends makes little difference. The signaling quality of special dividends is quite small. Another conclusion is that special dividends seem to decline as institutional investors become more prevalent than individuals. Sophisticated investors can easily see that common and special dividends are merely substitutes and prefer consistent payments. Finally, the study fails to find a relationship between special dividends and stock repurchases; suggesting that special dividends are not being replaced by repurchase plans. The findings in this study only further complicate the theories that dividends have important signaling qualities; if strong signals were derived from the payment of dividends then we would not have observed the phasing-out of special dividends. Firms that announce a special dividend usually have stellar performance (based on return on assets) over the previous year. It is found that firms chose to pay a special dividend when management does believe it can sustain a permanent dividend increase or when the share price is not considered undervalued by management. When management does not believe that their firm is undervalued, but that their shares are possibly over-valued, they are unlikely to repurchase shares and therefore are more likely to issue a special dividend with the excess cash. During the year before a firm decides to pay a special dividend, it seems likely that the firm is achieving some sort of operational success, measured by ROA (DeAngelo et al., 2000). Furthermore, Special dividends

indicate current excess performance rather than expected improvement to long run performance. No evidence is found that suggests further operational improvement after the announcement of the special dividend. On average, investors cannot expect to have superior stock returns and operational performance that precedes a special dividend to continue after the announcement. Future studies provide the insight into firms in long term performance after the special dividend (DeAngelo et al., 2000). Choua, Liub, and Zantout (2009) analyzed the long-term stock performance of shares following the payment of extraordinary and special dividends. They contest that no previous studies use an appropriate timeline and sample size to ensure valid results. To ensure utmost accuracy, the sample consisted of 2282 special U.S. cash dividends declared over the period from 19262001 by NYSE, Amex and Nasdaq listed firms. The post-declaration long-term abnormal returns are estimated by applying the Fama and French (1993) three-factor model. This model is used with equally and value-weighted portfolio returns as well as with the ordinary- and weighted-least-squares estimation procedures. The conclusion is that positive dividend news relate to a statistically significant positive two-day abnormal return of 1.83%, with approximately 59.20% of the abnormal returns being positive. Like many previous studies, they found that in the long run there is no evidence of any stock price drift following declarations of special U.S. cash dividends. This holds true even when the event is economically significant as measured by the size of the special dividend, or by investors initial response to the declaration (Fama and French, 1993). It is important to note that equity shareholders of a firm are not the only stakeholders that have a vested interest in a firms dividend policy. Bond holders are also concerned with a firms decisions regarding dividends. A study by Dhillon and Johnson (1994) compared the effects of

dividend initiations, dividend increases, and dividend decreases to see how these changes affect the price of the stock and the price of the bonds traded by the firm. Dividend initiations and increases caused significant price increases for the corresponding stock. The firms bonds, however, experienced negative returns that were not very significant. Evidence supporting wealth redistribution hypothesis was found regarding the announcement of large dividend changes. This was shown by the prices of bonds having the opposite price effects compared to the stock prices (Dhillon & Johnson 1994). Although some previous research supports the idea that the signaling power of dividends has been decreasing, abnormal returns associated with special dividends are found in subsequent studies. In a study conducted by Balachandran & Nguyen (2004), abnormal returns were observed for firms that announced special dividends. The findings showed that the average abnormal return from day 0 to day 1 was 3.43%. These results are significant at the 1% level using a standardized t-test and generalized sign test. The research also looks at the effects of corporate tax changes on special dividends. In the 13 year period analyzed, there were three reductions in the corporate tax rate. The authors separated the results to show the four periods with four different tax rates. The breakdown of the abnormal returns over the four periods is 3.4%, 4.7%, 3.3% and 3.5% respectively. These results are not statistically significant to show whether changes in the corporate tax rate affect dividend returns (Balachandran & Nguyen, 2004). An Australian study done by Balachandran, Faff, and Nguyen (2004) focused on whether differences in abnormal returns associated with special dividend announcements existed among industries. This study also regards whether intra-industry information is conveyed by the announcements. The findings showed stronger significance for industrial firms than with

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financial and resource firms. This can be explained by the fact that market reaction to special dividends is more dramatic for industrial firms.

James J. Park (2009) stated that an alternative way to view dividends is as a method of reducing the agency costs associated with fraudulent activity. When a firms management team uses the excess cash flows of the business in a way that harms shareholders, or if they improperly report the financial condition of the firm to the public, investors are entitled to take legal action against the firm in an effort to gain compensation for financial damages. However, this type of shareholder compensation creates a circular problem, as investors are essentially suing the business that they own, and therefore compensating themselves with funds that they already own. Additionally, these funds will be no longer available for the firm to reinvest into profitable projects, which further harms the investments of shareholders. This type of compensation also has significant transaction costs, which take the form of legal fees that are charged by attorneys. When shareholders are compensated via a legal settlement from their firm, these additional qualities are not realized, and in fact the settlement will elicit a ne gative signal about the firms management. However, the signaling impact of shareholders could improve in these situations if management decides to take pre-emptive action to compensate investors in the form of a special dividend instead of going to court over the issue. Doing so would allow shareholders to reduce their transaction costs from legal fees, and would send a strong signal to the market that management is now serious about acting in shareholders best interest and reducing agency costs (Park, 2009).

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4.0 Key Research Question

This paper provides an analysis on the effects of special dividend announcements on the stock price changes. The empirical evidence presented in the previous section indicates that the announcement of a special dividend is related to a positive abnormal return on and around the announcement date. Some studies argue that the price change is accounted for before the announcement (Pettit, 1972). More recent studies show that there are consistent abnormal returns associated around the day of special dividend announcements (Balachandran, Nguyen, 2004). The consistencies of these positive abnormal returns are well documented for American firms (DeAngelo, DeAngelo, Skinner, 2004). After further review of the current literature, it was difficult to obtain special dividend research regarding Canadian specific firms. One article was found regarding Australian firms, which could help provide inference into the Canadian market. Australia and Canada have mildly similar markets as both are heavily comprised of resource firms and operate under a similar English common law legal system. The result from this Australian study proves that there is sufficient evidence that the market reaction to special dividends is indeed stronger for industrial non-financial firms and weaker for financial and resource firms (Balachandran, Faff, Nguyen, 2004). The current lack of research for Canadian special dividend announcements is the primary motivation for this study. There is also no current research regarding special dividend announcements for small and medium market cap firms. These two reasons provide the motivation for this study, which leads to the first research question. Are there positive abnormal returns associated with the announcement of Canadian special dividend paying firms? Also, is there a difference in abnormal returns between small, mid and large cap stocks?

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If abnormal returns are found for Canadian firms, predictive indicators will be then chosen and studied for these firms. The literature describes that in order to pay a special dividend; the firm usually must have high cash balances and great operating performance in the prior year (DeAngelo, DeAngelo, Skinner, 2004). If this is the case, it should found that Canadian special dividend paying firms abnormal returns should have some link to performance indicators such as return on assets return on capital, debt to equity and current ratio.
4.1 Hypothesis

The primary Hypothesis is as follows: H0: There are no abnormal returns associated with Canadian special dividend announcements. Ha: There are abnormal returns associated with Canadian special dividend announcements. It is expected that the share price increases during the development period. The signaling theory provides some insight. The special dividend is a signal that the firm has ran out of good projects to invest in, and does not believe that there is enough stable cash flows for the future to issue a regular dividend or an increase. It is assumed that these firms have been exhausting their good projects in the period prior to announcing the special dividend; while having good operational performance. This should indicate positive price movements for the periods prior to the special dividend.

5.0 Data Collection and Methodology

The initial sample for the purpose of this study was made up 147 Canadian companies that are publicly traded on the Toronto Stock Exchange. These companies were all Canadian listed and announced a special dividend between the years January 2005 and December 2012. This period was chosen due to the lack of up to date special dividend research. Another reason

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for choosing a recent period is to possibly provide some insight into current market efficiency. A filter was used to observe publicly listed companies which had voting rights, were listed as common stock, were still in operation as of December 2012, and announced a special dividend within the aforementioned time frame. A reason that only firms still in operation were chosen was so that the research would provide useful information relating to stock returns when special dividends are paid in the normal course of business, and not simply paid out as a means of liquidating the firm. Also, firms that have since gone bankrupt may have been in severe distress at the time of their most recent special dividend and thus investors may have reacted differently to these types of stocks. The sample was further narrowed by eliminating all income trust investment funds and companies that had other events around the time of the special dividend announcement. Failure to eliminate this noise would result an increase in abnormal returns around the event date (Seiler 2000). The events eliminated included earnings announcements, stock splits, executive resignations, M&A activity or other significant events that would create unrelated returns in our sample. After this was completed, the sample was reduced to 51 companies that would be used to test the markets reaction to a special dividend announcement. In order to determine whether or not market capitalization has an impact on the abnormal returns realized after the announcement of a special dividend, it is crucial to define the levels of market cap for the purpose of this study. It is determined that micro cap firms are defined to have a market cap less than $300 million (CDN), small cap firms have a market cap of $300 million to $2 billion, mid cap firms have a market cap of $2-$10 billion, large cap firms have a market cap of $10-$200 billion and finally, mega cap firms have a market cap greater than $200 billion (Scottrade, 2013). Fitting the aforementioned sample size of 51 firms into such categories, the following division of market cap was determined:

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Micro < $300 M Small $300 M to $2 B Mid $2-10 B Large $10-200 B

Sum of sample size

# Firms 22 15 11 3 51

There were no mega cap firms included in the sample; thus, this particular level of market capitalization will not be analyzed within the study on Canadian firms. The analysis will be broken down into 2 periods. The first is a development period, where the expected return will be calculated by running a regression on each of the stocks in the sample over a 3 year period. A single factor model will be used to estimate alpha and beta for each observation.

Rit = 1 + 1Rmt + eit

This development period will end 150 days before the event date, which will be the actual announcement of a new special dividend. The period of 150 days will be used as a quiet period to ensure that there is no early reaction in the weeks or months before the announcement. The alpha and beta calculations from the earlier development period will then be used to calculate the expected return during the test period.

E(R) = * + *(E(Rm))

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These expected returns will then be compared to the actual returns around the day of the special dividend announcement for each observation. Any abnormal returns occur prior, during or after the announcement will be recorded. Abnormal returns in the days after the announcement would show that an investor could potentially profit from the announcement of a special dividend. The significance of the results by looking at the distribution of the returns will then be tested. Any major outliers will be analyzed and potentially removed if they skew results. A t-test will be run to test the significance of the results. This will be done by dividing the average abnormal return for all observations by the standard error.

T-Stat =
Various significance levels such as 10%, 5% and 1% will be applied in order to test the results. A higher significance level would increase the possibility that the null hypothesis (there are no abnormal returns post-announcement) will be rejected, when it was in fact true. After looking at the sample results, further tests will be done to analyse the variables that impact the abnormal returns due to a special dividend analysis. Testing variables such as market cap, debt to equity ratio, return on assets, return on equity, and current ratio will also be done within this report. For a market condition test, the test period will be broken down into two conditions. The first being all special dividends announced before March 6th 2009, whereas the second will be the period after. These periods were chosen because the Toronto Stock Exchange reached its lowest point on this date. This breakdown will allow us to look at the effects of special dividend announcements in a declining stock market versus announcements during a rising market.

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Dummy variables (D1, D2 and D3) will be used in our regression to isolate the impact of the variables. For example, small cap stocks would use D1=1, D2=0 & D3 =0. The regression would then show how each one specific variable would impact the abnormal returns.

Yi = 1 + 2D2 + 3D3 + X i + ei
The significance of each output will then be tested in order to analyse if trends were applicable to certain conditions or whether particular ratios lead to higher abnormal returns. The various statistical tests will demonstrate if the results are statistically significant. If the results are statistically significant, it could then be determined whether they are economically significant. The regressions will be run on our various variables for three different time periods. One day, three day and 11 day time horizons will be used for our analysis.

6.0 Signaling Effect

In order to determine whether the signaling effect can be observed for the data set in this study, the EPS was gathered for each firm for the quarter before the announcement was made along with the most recent quarter post-announcement. The calculation of the cumulative average for the growth of EPS over this period resulted in a growth rate of 44.83%. Looking forward another period, the growth of EPS increased further by an average of 111.89%. These results are consistent with previous studies that a signaling effect exists with the announcement of a special dividend. However, it is crucial to determine whether the payment of a special dividend for Canadian firms results in only a temporary earnings increase as previous studies have concluded. Thus, looking beyond the six months studied for short term earnings increases,

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the second quarter after the special dividend announcement confirmed previous studies. The average EPS growth rate during this period was -50.93%. This solidifies the fact that special dividend announcements signal positive earnings growth; however, this is only evident within the first two quarters post announcement. In the periods after, EPS drop significantly thereby consistent with the fact that earnings increases following a special dividend announcement are only temporary (please refer to Appendix B: EPS and Signaling Effect for details).

7.0 Regression Results

A single factor regression was used to determine the T-stat of the model. The results obtained for different windows examined were as follows:

Beginning Day Number Ending Day Number T- Statistics

848 848
3.25758

820 853
1.55199

840 850
0.79739

820 821
0.23529

1 851
0.04539

It is therefore concluded that statistically significant abnormal returns are witnessed on the announcement date (day=848). Using the single factor model, the null hypothesis was rejected in favour of Ha: there are abnormal returns associated with Canadian special dividend announcements. The cumulative average abnormal return at the end of this trading day is equal to 1.75%. Looking to see if such a pattern can be observed for days before or after this date, it is concluded that no statistically significant abnormal returns are observed beyond the one day scope. Next, the report will continue to analyze certain variables to see whether significance can be extracted from the regression results.

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7.1 Capital Structure: Debt to Equity

As mentioned previously, the signalling effect shows that the announcement of a special dividend usually means the earnings are expected to increase within the next quarter. However, as the pecking order model predicts, short-term variation in earnings is primarily absorbed by debt (Fama & French, 2002). Thus, it is predicted that a higher debt to equity ratio will negatively impact abnormal returns since investors believe that although the firm is signaling higher future earnings, their high leverage will end up depleting such benefits before shareholders are able to gain from it. Similarly, investors prefer that firms with high amounts of debt use the excess cash to pay it off. Thus, releasing a special dividend may have an adverse affect on abnormal returns for companies with high debt to equity ratios. The following regression output shows the abnormal returns on stocks for the 5 days before and 5 days after a special dividend announcement for firms with varying debt to equity ratios at the time of the announcement. Stocks were grouped into percentages of 0-30.99%, 31-99.99% and 100% and up (meaning that creditors have more money invested in the company than investors). Debt to Equity 11 Day Abnormal Return The results below show no significance for any of the current ratio groupings over the 11day period. The p-values for all three categories are statistically insignificant. However, companies which have D/E ratios of 32-100% exhibit the highest p-values and remain consistent with the pecking order theory.
SUMMARY OUTPUT
Regression Statistics Multiple R R Square Adjusted R Square 0.265595671 0.07054106 0.018904453

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Standard Error Observations

0.102323482

Coefficients Intercept 0-30.99% 31-99.99% -0.0555297 0.070141412 0.080626928

Standard Error 0.041773387 0.047366568 0.051161741

t Stat -1.3293081 1.480821066 1.575922291

P-value 0.19210944 0.147354128 0.123791963

Lower 95% -0.14025006 -0.02592244 -0.02313389

Upper 95% 0.029190654 0.166205265 0.184387749

Lower 95.0% -0.14025006 -0.02592244 -0.02313389

Upper 95.0% 0.029190654 0.166205265 0.184387749

Debt to Equity 3 Day Abnormal Return By minimizing the abnormal return period to 3 days, the statistical significance drops drastically in comparison to the 11 day abnormal returns. None of the p-values are significant at the 95% level regardless of the capital structure. These insignificant results, as witnessed in the 11 day period as well, can be explained by market efficiency. SUMMARY OUTPUT
Regression Statistics Multiple R 0.1624163 R Square 0.0263790 Adjusted R Square -0.0277109 Standard Error 0.072121924 Observations 39
Standard Error 0.02944365 0.03338596 0.036060962 Lower 95% 0.0375650 0.0715476 0.0515756 Lower 95.0% 0.0375650 0.0715476 0.0515755 Upper 95.0% 0.08186396 0.06387206 0.09469439

Coefficients Intercept 0-30.99% 31-99.99% 0.022149473 -0.00383781 0.021559372

t Stat 0.75226648 0.11495272 0.59785903

P-value 0.45678158 0.90912137 0.55367668

Upper 95% 0.08186396 0.06387206 0.09469439

Debt to Equity 1 Day Abnormal Return Contrary to what was expected, firms with a debt to equity ratio of 100% or more exhibited significantly positive abnormal returns. Additionally, although D/E ratios of 3199.99% were not statistically significant, the p-value was relatively strong at 0.084. Potential

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reasons for this anomaly could be that the firms included in this subgroup were at an optimal ratio and were able to meet interest payments thus allowing for excess cash payments to investors.
SUMMARY OUTPUT Regression Statistics Multiple R 0.28398041 R Square 0.08064487 Adjusted R Square 0.02956959 Standard Error 0.05650365 Observations 39
Coefficients Intercept 0-30.99% 31-99.99% 0.060039874 -0.03302591 -0.05020003 Standard Error 0.02306752 0.026156109 0.028251827 t Stat 2.602788425 -1.26264605 -1.77687724 P-value 0.013344366 0.214834274 0.084039544 Lower 95% 0.013256775 -0.08607296 -0.10749739 Upper 95% 0.106822974 0.02002114 0.007097333 Lower 95.0% 0.013256775 -0.08607296 -0.10749739 Upper 95.0% 0.106822974 0.02002114 0.007097333

7.2 Return on Assets

By observing the ROA of a firm in the year prior to the announcement of a special dividend, excellent performance can be used as a factor to determine significant abnormal (DeAngelo, DeAngelo, Skinner, 2000). Companies were divided in categories of less than 5%, 510%, and greater than 10% ROA in the year prior to special dividend announcement. Notably, industry effects can definitely impact the results of such results among many other reasons. ROA- 11 Day Abnormal Returns Looking at the 95% level, none of the p-values are statistically significant. This can surely be applied to the market efficiency hypothesis which states that the price of the stock reflects all currently available information. Thus, the ROA made public to investors a year prior to the dividend announcement has already been included in the price.

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SUMMARY OUTPUT
Regression Statistics Multiple R 0.33985976 R Square 0.11550466 Adjusted R Square 0.06636603 Standard Error 0.09979182 Observations 39
Coefficients Intercept <5% 5-10% -0.03826213 0.070352851 0.077228043 Standard Error 0.027677272 0.037814353 0.04088204 t Stat -1.3824386 1.860480098 1.889045714 P-value 0.17535404 0.071001895 0.066962136 Lower 95% -0.09439424 -0.00633821 -0.00568458 Upper 95% 0.01786998 0.147043912 0.160140664 Lower 95.0% -0.09439424 -0.00633821 -0.00568458 Upper 95.0% 0.01786998 0.147043912 0.160140664

ROA- 3 Day Abnormal Returns The p-values were less significant at the 3 day period than they were at the 11 day period. However, firms which had an ROA of 5% or more in the year prior to the special dividend announcement were more likely to exhibit abnormal returns during this time than were firms with an ROA of 5% or less.
Regression Statistics Multiple R 0.328772333 R Square 0.108091247 Adjusted R Square 0.058540761 Standard Error 0.068508298 Observations 39
Coefficients Intercept <5% 5-10% 0.031457532 0.011053151 -0.04392931 Standard Error 0.019000783 0.025960012 0.028066017 t Stat 1.655591319 0.425776029 -1.56521357 P-value 0.106497598 0.672805875 0.126281929 Lower 95% 0.00707784 0.04159619 0.10084983 Upper 95% 0.069992906 0.063702496 0.01299121 Lower 95.0% 0.00707784 0.04159619 0.10084983 Upper 95.0% 0.069992906 0.063702496 0.01299121

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ROA- 1 Day Abnormal Returns Finally, it was interesting to see that having an ROA of 10% or more was statistically significant at the 95% level with a p-value of 0.00895. Similarly, a firm with an ROA of 5-10% also exhibits positive abnormal returns on the day around the announcement date. Thus, excellent performance of the special dividend issuing firm in the year prior to the announcement is a good indicator of abnormal return for the one day period post-announcement. SUMMARY OUTPUT
Regression Statistics 0.36019280 Multiple R 8 0.12973885 R Square 9 Adjusted R 0.08139101 Square 8 Standard 0.05497429 Error 6 Observation s 39
Coefficients Intercept <5% 5-10% 0.042135726 -0.00486862 -0.04769575 Standard Error 0.015247126 0.020831541 0.022521498 t Stat 2.763519167 -0.23371404 -2.11778772 P-value 0.008954052 0.816530954 0.041166296 Lower 95% 0.011213121 -0.04711695 -0.09337147 Upper 95% 0.073058332 0.037379699 -0.00202004 Lower 95.0% 0.011213121 -0.04711695 -0.09337147 Upper 95.0% 0.073058332 0.037379699 -0.00202004

7.3 Current Ratio

The current ratio compares a firms current (within 1 year) assets to its current liabilities, which should produce a ratio greater than 1 when a firm is in good financial condition. A ratio that is greater than 1 means that the company will be able to satisfy its current obligations without having to borrow additional funds. Therefore, when a firm decides to pay out a special

23

dividend when they have a low current ratio, we would expect the market to react more negatively than to firms who have strong current ratios. The following regression output shows the abnormal returns on stocks for the 5 days before and 5 days after a special dividend announcement for firms with various current ratios at the time of the announcement. Stocks were grouped into current ratio classifications of less than 1 (meaning these firms are illiquid or possibly insolvent), as well as between 1 and 2, and anything greater than a ratio of 2. Current Ratio -11 day abnormal returns Although our hypothesis seems to make sense intuitively, the results below show no significance for any of the current ratio groupings over the 11-day period. The p-values for all three categories are statistically insignificant.
SUMMARY OUTPUT Regression Statistics Multiple R 0.205244659 R Square 0.04212537 Adjusted R Square -0.01108989 Standard Error 0.103875839 Observations 39
Coefficients Intercept <1 1.0-2.0 0.022763997 -0.00493267 -0.04696956 Standard Error 0.025193591 0.041397295 0.039165029 t Stat 0.903563004 -0.11915442 -1.19927298 P-value 0.372233936 0.905815464 0.238256016 Lower 95% 0.02833097 0.08889028 0.12639992 Upper 95% 0.073858969 0.079024935 0.0324608 Lower 95.0% 0.02833097 0.08889028 0.12639992 Upper 95.0% 0.073858969 0.079024935 0.0324608

Current Ratio - 3 days abnormal returns Abnormal returns from the day before a special dividend announcement to the day following the announcement was also analyzed for stocks with varying current ratios. For this smaller time period the relationship between firms with a current ratio greater than 2 and the abnormal returns on these stocks was deemed to be significant, with an intercept p-value of only

24

0.0328. However, this result could also include the effects of other factors in addition to having a current ratio greater than 2. For stocks with a current ratio less than 2, the 3-day abnormal return results were insignificant at the 95% level again.
SUMMARY OUTPUT Regression Statistics Multiple R 0.251711225 R Square 0.063358541 Adjusted R Square 0.011322904 Standard Error 0.070205261 Observations 39
Coefficients Intercept <1 1.0-2.0 0.037779848 -0.00800346 -0.04033007 Standard Error 0.017027277 0.027978671 0.026469977 t Stat 2.218783933 -0.28605592 -1.52361559 P-value 0.032893962 0.776474978 0.136342025 Lower 95% 0.00324693 0.06474684 0.09401367 Upper 95% 0.072312766 0.04873991 0.013353532 Lower 95.0% 0.00324693 0.06474684 0.09401367 Upper 95.0% 0.072312766 0.04873991 0.013353532

Current Ratio - 1 day abnormal return When analyzing the returns for stocks on the day of a special dividend announcement there was no significant relationship with a firms current ratio on that day when the ratio was less than 2. As the regression output below suggests, for firms with current ratios greater than 2, the results may be significant as the p-value for the intercept is significant at the 5% level in this sample.
SUMMARY OUTPUT Regression Statistics Multiple R 0.219722248 R Square 0.048277866 Adjusted R Square -0.00459559 Standard Error 0.05748969 Observations 39
Coefficients Intercept 0.038004247 Standard Error 0.013943298 t Stat 2.725628273 P-value 0.009847556 Lower 95% 0.009725928 Upper 95% 0.066282566 Lower 95.0% 0.009725928 Upper 95.0% 0.066282566

25

<1 1.0-2.0

-0.00874173 -0.02909481

0.022911176 0.021675737

-0.3815486 -1.34227524

0.705039035 0.187910897

-0.05520775 -0.07305524

0.037724292 0.014865627

-0.05520775 -0.07305524

0.037724292 0.014865627

7.4 Return on Capital

Return on capital is a measure of the return that a firm is able to generate on the capital that they employ. A firm is said to be adding shareholder value when they are able to generate a greater return on their capital than the weighted average cost of capital (WACC). Small and newer firms tend to have many profitable potential projects available to invest in, which makes it relatively easier for them to generate high returns on their capital than it is for large, established firms in maturing industries. However, younger firms are also typically more risky and thus have a higher WACC, which reduces their ability to generate excess returns over their WACC. Although large firms may have less potential attractive project alternatives, they usually have solid credit ratings and have a low cost of capital. Given this, it is a constant challenge for all firms to invest in projects that help them create shareholder value. Research conducted by Denis et al. (1994), found that firms with poor investment options experienced a more positive stock reaction when announcing dividends than did firms with good investment potential. This is because investors would prefer that these firms simply pay out more cash so that they can invest the proceeds in other investments (stocks, bonds, etc.) that will generate higher returns. Thus, it was expected that the stocks in this particular sample would react similarly to special dividend announcements; high ROC-generating firms would see less abnormal returns than low ROC-generating firms. The stocks were grouped into three classes of ROC levels, which were less than 5%, between 5% and 10%, and those with ROCs greater than 10% at the most recent reporting period before the special dividend announcement. Return on Capital (%) - 11 day abnormal return

26

The regression output below provides the results for each of the three ROC categories for the abnormal returns over the 5 days before and the 5 days following the special dividend announcement. Over this longer event horizon none of the three ROC levels proved to be statistically significant at the 5% level, given their p-values of 0.434 or greater. SUMMARY OUTPUT
Regression Statistics Multiple R 0.130836706 R Square 0.017118244 Adjusted R Square -0.0374863 Standard Error 0.10522304 Observations 39
Coefficients Intercept <5 5.0-10.0 0.018720314 -0.03184848 -0.01048197 Standard Error 0.024815036 0.04027805 0.04152329 t Stat 0.754393975 -0.79071555 -0.2524359 P-value 0.455519401 0.434288418 0.802139932 Lower 95% 0.03160691 0.11353615 -0.0946951 Upper 95% 0.06904754 0.049839191 0.073731166 Lower 95.0% 0.03160691 0.11353615 -0.0946951 Upper 95.0% 0.06904754 0.049839191 0.073731166

Return on Capital - 3 day abnormal returns The next output shows the regression results of ROC vs. stock abnormal returns for time period between the day before the announcement, and the day following the dividend announcement. Again, the results were insignificant at the 5% level, although the p-value is stronger for firms with an ROC less than 5%, vs. the firms with ROCs between 5% and 10%; this is in line with the hypothesis that firms with lower ROC performance will see more favorable stock reactions when a dividend is announced. However, the intercept incorporates firms with ROCs greater than 10% among other factors, and has the strongest p -value of all, which is inconsistent with the notion that high ROC firms will not be favored to pay special dividends. Perhaps the intercept coefficient is capturing too many other variables to pinpoint the effect that high a high ROC has on a stocks reaction.

27

SUMMARY OUTPUT
Regression Statistics Multiple R 0.20446179 R Square 0.041804623 Adjusted R Square -0.01142845 Standard Error 0.071008445 Observations 39
Coefficients Intercept <5 5.0-10.0 0.020298342 0.0237694 -0.01435366 Standard Error 0.016746115 0.027181135 0.02802147 t Stat 1.212122427 0.874481485 -0.51223792 P-value 0.233361015 0.387652912 0.611612982 Lower 95% 0.01366435 -0.0313565 0.07118383 Upper 95% 0.054261037 0.078895297 0.042476516 Lower 95.0% 0.01366435 -0.0313565 0.07118383 Upper 95.0% 0.054261037 0.078895297 0.042476516

Return on Capital - 1 day abnormal return For abnormal returns on the day of the special dividend announcement there are mixed results when regressed against ROC levels. Firms within the lowest ROC category produce a very weak, but positive relationship with abnormal returns, while stocks with an ROC between 5% and 10% are slightly negatively correlated with abnormal returns, as given by their coefficients. The intercept is significant at the 5% level, and shows a positive relationship of 0.03069 between ROCs greater than 10% and abnormal stock returns on the day of a special dividend announcement.

28

SUMMARY OUTPUT
Regression Statistics Multiple R 0.260710166 R Square 0.067969791 Adjusted R Square 0.016190335 Standard Error 0.056891827 Observations 39
Coefficients Intercept <5 5.0-10.0 0.03069121 0.011413468 -0.0276618 Standard Error 0.013416954 0.021777472 0.022450747 t Stat 2.287494515 0.524095178 -1.23211054 P-value 0.028147903 0.603424439 0.225894877 Lower 95% 0.003480365 -0.03275329 -0.07319403 Upper 95% 0.057902054 0.055580229 0.017870423 Lower 95.0% 0.003480365 -0.03275329 -0.07319403 Upper 95.0% 0.057902054 0.055580229 0.017870423

7.5 Two Period Analysis

It was found that within the sample of 51 Canadian special dividend announcements, abnormal returns were materially different for upward and downward trending markets. The lowest point for the S&P TSX index during the financial crisis was around March 6 th, 2009, and the market has since recovered quite significantly. Firms that announced special dividends before this low point, essentially during the downward trend towards the bottom, experienced an average 11-day cumulative abnormal return of -1.32%. However, announcements that were made during the market recovery generated an average 11-day cumulative abnormal return of +2.32%. Thus, there seems to be a strong indication that the stock market reacts quite differently to the announcement of special dividends during falling and rising markets. The results are rather intuitive, in that it would be expected that firms would be in a better position to pay a special dividend during expansionary periods, and that they should conserve cash when the economy is faltering. A regression analysis of this finding is provided below. Unfortunately the model does not provide strong support for the theory that market trends have a significant impact on stock price reactions to special dividend announcements.

29

SUMMARY OUTPUT Regression Statistics Multiple R 0.171854186 R Square 0.029533861 Adjusted R Square 0.00972843 Standard Error 0.092756537 Observations 51
Coefficients Intercept pre mar 6th 2009 0.023203533 -0.03639436 Standard Error 0.015047097 0.029803422 t Stat 1.542060441 -1.22114704 P-value 0.129492957 0.227873624 Lower 95% 0.00703474 0.09628658 Upper 95% 0.053441807 0.023497859 Lower 95.0% 0.00703474 0.09628658 Upper 95.0% 0.053441807 0.023497859

7.6 Market Capitalization

Further analysis of the data found that the average abnormal returns seemed to differ for each different market cap size. Of the 51 firms analyzed, 25 were considered micro caps (<$300M), 19 were small caps (between $300M and $2B), and 7 were mid caps (between $2B and $10B). The small cap stocks produced an average 1-day abnormal return of 3.45%, followed by micro caps with 1.24%, and mid caps with an abnormal return of just 0.11%. The small caps also outperformed both other sizes over the 3-day window with an abnormal return of 2.93%. Over the 11-day period surrounding the announcement date, micro cap firms generated the best abnormal return, but only slightly higher than the small cap returns. The regression analysis of this relationship is provided below for 1-day abnormal returns. Although there seemed to be a relationship between abnormal returns and firm size, the regression results provide very little statistical support for this relationship.

30

SUMMARY OUTPUT

Regression Statistics
Multiple R R Square Adjusted R Square Standard Error Observations ANOVA 0.209012407 0.043686186 0.003839777 0.059912596 51

df
Regression Residual Total 2 48 50

SS

MS

Significance F
0.342302678

0.007870842 0.003935421 1.096364456 0.172296917 0.003589519 0.18016776

Coefficients Standard Error

Intercept Micro Small 0.001131209 0.011260476 0.033334012

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0% Upper 95.0%

0.022644833 0.049954384 0.960366034 0.025619704 0.439524065 0.662254377 0.026489819 1.258370692 0.214344318

-0.044399279 0.046661696 -0.044399279 0.046661696 -0.04025139 0.062772343 -0.04025139 0.062772343 -0.019927339 0.086595362 -0.019927339 0.086595362

8.0 Limitations and Considerations for Further Research

8.1 Special Dividend Data

One major limitation of our study is the lack of large cap stocks within our sample. As a result we were unable to make any inferences to Canadian large cap special dividend announcements. A potential extension is to increase our timeline to allow larger cap equities in the study. However, there is one restraint when increasing our timeline.
8.2 Long term effects

Another limitation is that due to our recent data set we are unable to look at the long term performance of special dividend paying firms after the special dividend announcement. This restricted the study to only look at previous data and have little comparison to the future fluctuations of the price in the long run; which is considered to be three years by previous studies. An extension can be included in 2015 when the long run effects for 2012 announcement firms information can be extracted from the market.

31

8.3 Variables

In regards to the results for the firm performance variables we were unable to find strong significance in regards to abnormal returns. An extension to this part of the study is to perhaps use a different approach to predict these variables affects on abnormal returns is to relate the timeframe in which these variables are extracted and categorize them. The changes in markets were only applied to changes in the stock price within this study; which proved to be insignificant. By selecting different sub-sampling periods within the market ,there is a different influence each variable may have during different stages within the markets (Chou, Liu, Zantout, 2007). Another potential extension can be using a cross sectional logit regression (Bulan, Subramanian, Tanlu, 2007). This would find the correlation between variables as well as abnormal returns. If there are little to no significance between the current variables and abnormal returns the results of the correlations between variables may reveal significant data in the reactions of the market caused by special dividends. A last potential extension is adding a hazard model. The hazard model estimates the probability that a firm will initiate a dividend as a function of various firm characteristics, relative to other firms that are at the same stage in their life-cycle (Bulan, Subramanian, Tanlu, 2007). This can help aid the assumptions on why special dividends may be released and help in predicting future special dividend announcements.
8.4 Signalling

Some of the limitations on trying to capture the signalling effect is that each sectors quarter earnings may give out a different signal itself which may skew the data. For example, final quarters are historically strong quarters (Brown et al., 2012), if the special dividend is released prior to the final quarter, the extra earnings seen in comparison to the previous quarter

32

can be the normal cycle of when sales increase. Another example is that retail stores also experience higher than average in sales through the months of November and December (Brown et al., 2012), this is another factor that can change the results of our measure for capturing the signal sent to the market.

9.0 Conclusion
The overall conclusion for this report is that there are abnormal returns associated with the announcement of Canadian special dividends. These results were only significant on the announcement day itself. This gives credence to the fact that the Canadian stock market is strong form efficient. Economic profits cannot be realized by trading on an announcement of a special dividend. This is because the stock price fully adjusts on the announcement date. This study also concludes that small cap stocks experience larger abnormal returns than micro or midcap stocks. With that said, there is still weak statistical results between the relationship of the market cap size of the firm and return. The results when analyzing our performance variables were mixed. ROA was significant for one day returns. The debt to equity ratio showed no significant relationship with abnormal returns. The current ratio overall gave mixed results which were inconclusive. Lastly, ROC was found significant positive correlation with the abnormal returns.

This work allows for comparison between the Canadian market and previous studies conducted on the U.S. market. There are many similarities between both exchanges, such as the fact that both markets experienced significant abnormal returns on the special dividend announcement date. Both countries have shown that the markets are very efficient since stock prices adjust to the announcement and stabilize at a new equilibrium. Technology advancements over the last few decades have increased the pace of information sharing. Since this study only

33

looked at events after the year 2005, one would expect that news of the special dividend announcement to quickly reach investors. Future studies could look at an earlier time period to see if the Canadian stock market has become more efficient due to the advent of the Internet and other media sources. Further extensions would also be to look at other explanatory variables and study the long term effects of special dividends on firms.

34

10.0 Appendix
Appendix A: Sample Set Information

Ticker
TSX:YRI

Firm Name
Yamana Gold, Inc.

Event Date
11/04/2010 (Special Dividend Announced) Yamana Gold, Inc. Declares Quarterly Dividend Payable on January 14, 2011 ; Declares Special Dividend Payable on November 26, 2010 11/04/2010 (Special Dividend Announced) Valeant Pharmaceuticals International, Inc. Declares Special Dividend, Payable on December 22, 2010 04/30/2011 (Special Dividend Announced) Centerra Gold Inc. Declares Annual and Special Dividends, Payable on May 18, 2011 02/05/2007 (Special Dividend Announced) Husky Energy Declares Quarterly and Special Dividend Payable on April 3, 2007 09/15/2008 (Special Dividend Announced) Bonavista Energy Trust Announces Monthly Cash Distribution and Supplementary Distribution Payable on October 15, 2008 08/12/2010 (Special Dividend Announced) 08/06/2008 (Special Dividend Announced) Russel Metals Inc. Declares Quarterly Common Share Dividend and Supplemental Dividend, Payable on September 15, 2008 12/14/2007 (Special Dividend Announced) Peyto Energy Trust Announces December 2007 Cash Distribution and

Market Cap
8,620

ROA
3.03

D/E
7.16

ROC
3.97

TSX:VRX

Valeant Pharmaceuticals International, Inc.

2.6 8,370

60.48

3.34

TSX:CG

Centerra Gold Inc.

14.23 4,152

15.44

TSX:HSE

Husky Energy Inc.

13.36 3,037

17.13

21.66

TSX:BNP

Bonavista Energy Corporation

5.52 2,541

52.87

7.11

TSX:BEI.UN TSX:RUS

Boardwalk Real Estate Investment Trust Russel Metals Inc.

4.99 2,167 10.55 1,810 19.19

5.35 14.64

TSX:PEY

Peyto Exploration & Development Corp

11.21 1,760

107.16

14.66

35

Special Distribution, Payable on January 15, 2008 TSX:SII Sprott Inc. 03/23/2011 (Special Dividend Announced) Sprott Inc. Declares Special Annual and Fourth Quarter 2011 Dividend, Payable on April 15, 2011 05/12/2009 (Special Dividend Announced) ShawCor Declares Quarterly and Special Recognition Dividends Payable on 29 May 2009 11/04/2009 (Special Dividend Announced) Keyera Facilities Income Fund Declares Regular and Special Distribution Payable on December 15, 2009 12/21/2007 (Special Dividend Announced) Keyera Facilities Income Fund Declares Special Dividend Payable on January 2, 2008 02/26/2007 (Special Dividend Announced) Transforce Income Fund Announces Earnings Results for the Fourth Quarter and Full Year Ended December 31, 2006 ; Declares Regular Monthly Distribution Payable on April 13, 2007; Declares Special Distribution 12/25/2008 (Special Dividend Announced) Precision Drilling Trust Anticipates January 2009 Cash Distributions ; Declares Special Dividend Payable on January 15, 2009 10/30/2009 (Special Dividend Announced) IESI-BFC Ltd. Declares Quarterly Dividend and Special Dividend, Payable on January 15, 2010 and Payable on December 31, 2009, Respectively na 1,573 na na

TSX:SCL.A

ShawCor Ltd.

11.12 1,525

12.15

16.05

TSX:KEY

Keyera Corp.

7.8 1,366

71.42

10.75

TSX:TFI

TransForce Inc.

8.88 1,230

71.33

11.24

TSX:PD

Precision Drilling Corporation

11 1,144

16.79

13.44

TSX:BIN

Progressive Waste Solutions Ltd.

4.03 1,141

63.29

4.75

36

TSX:GMP

GMP Capital Inc.

TSX:GNV

GENIVAR Inc.

12/21/2007 (Special Dividend Announced) GMP Capital Trust Declares Monthly Dividend Payable on January 18, 2008; Declares Special Cash Distribution Payable on January 18, 2008 12/20/2010 (Special Dividend Announced) GENIVAR Income Fund Announces December 2010 and Special Distributions, Payable on January 17, 2011 11/11/2009 (Special Dividend Announced) Freehold Royalty Trust Reports Earnings Results for the Third Quarter and Nine Months Ended September 30, 2009; Declares November 2009 Distribution; Announces Executive Changes; Provides Capital Expenditure Guidance for the Fourth Quarter of 2009; Revised Capital Program for the Year 2009; Approves Capital Budget for 2010; Declares Extra Dividend 11/20/2012 (Special Dividend Announced) Canadian Satellite Radio Holdings Inc. Declares Special Cash Dividends and Quarterly Dividends Payable on January 2, 2013 and January 2, 2013, Respectively 05/24/2012 (Special Dividend Announced) Computer Modelling Group Ltd. Reports Audited Consolidated Earnings Results for the Fourth Quarter and Full Year Ended March 31, 2012; Declares Quarterly Dividend and Special Dividend, Payable on June 15, 2012 12/15/2010 (Special Dividend Announced) Wajax Income Fund Announces Special Cash Distribution, Payable on

18.45 1,060

816

7.47

12.95

9.5

TSX:FRU

Freehold Royalties Ltd.

755

4.29

76.52

5.2

TSX:XSR

Sirius XM Canada Holdings Inc.

714

0.77

320.39

1.64

TSX:CMG

Computer Modelling Group Ltd.

668

33.34

50.02

TSX:WJX

Wajax Corporation

623

6.62

37.5

10.83

37

January 20, 2011; Provides Dividend Guidance for the Months January and February 2011 TSX:CDL.A Corby Distilleries Limited 11/07/2012 (Special Dividend Announced) Corby Distilleries Limited Reports Unaudited Consolidated Earnings Results for the First Quarter Ended September 30, 2012; Declares Quarterly Dividend and Special Dividend, Payable on December 14, 2012 and January 10, 2013 Respectively 12/16/2009 (Special Dividend Announced) Armtec Infrastructure Income Fund Declares Special Distribution Payable on January 15, 2010; Declares Regular Cash Distribution for December 2009 Payable on January 29, 2010 11/09/2012 (Special Dividend Announced) Heroux-Devtek Inc. Announces Unaudited Consolidated Financial Results for the Second Quarter and Six Months Ended September 30, 2012; Provides Sales Guidance for the Fiscal Year Ending March 31, 2013; Proposes Special Cash Dividend, to be Payable on December 19, 2012 10/26/2012 (Special Dividend Announced) Glentel Inc. Declares Special Dividend 06/05/2008 (Special Dividend Announced) Le Chateau Inc. Reports Earnings Results for the First Quarter Ended April 26, 2008; Declares Regular Quarterly Dividend and Special Dividend Payable on August 19, 2008 500 7.84 9.02

TSX:ARF

Armtec Infrastructure Inc

474

5.45

86.91

TSX:HRX

Heroux-Devtek Inc.

416

4.8

16.62

6.6

TSX:GLN

Glentel Inc.

355

10.77

23.8

21.06

TSX:CTU.A

Le Chateau Inc.

327

16.86

27.47

21.67

38

TSX:DCI

DirectCash Payments Inc.

TSX:FC

Firm Capital Mortgage Investment Corporation

11/18/2010 (Special Dividend Announced) DirectCash Income Fund Announces Special Cash Distribution Payable on February 28, 2011 12/18/2012 (Special Dividend Announced) Firm Capital Mortgage Investment Corporation Announces Cash Dividend for the Month of December 2012 and Estimated Special Year-End Dividend, Payable on January 15, 2013 12/16/2008 (Special Dividend Announced) Avenir Diversified Income Trust Declares December Distribution Payable on January 15, 2009 ; Declares Special Distribution Payable on February 16, 2009 12/11/2010 (Special Dividend Announced) Brookfield Real Estate Services Fund Announces Regular and Special Distribution Payable on January 28, 2011 09/26/2011 (Special Dividend Announced) Madison Pacific Properties Inc. Declares Special Dividend 08/27/2009 (Special Dividend Announced) The Cash Store Financial Services Inc. Declares Regular and Special Dividend, Payable on September 24, 2009 01/25/2007 (Special Dividend Announced) Pacific & Western Declares Special Dividend Payable on March 7, 2007 07/08/2009 (Special Dividend Announced) Colabor Income Fund Announces Intention to Convert from an Income Trust Structure to a Corporation ; Declares Special Dividend, to be Paid

293

10.17

42.72

12.31

231

5.87

61.68

TSX:AVF

AvenEx Energy Corp.

217

6.21

17.66

10.1

TSX:BRE

Brookfield Real Estate Services Inc.

182

7.45

93.82

7.96

TSX:MPC

Madison Pacific Properties Inc.

158

2.8

69.3

2.92

TSX:CSF

The Cash Store Financial Services, Inc.

155

21.46

2.16

25.66

TSX:PWC

Pacific & Western Credit Corp.

154

1.35

TSX:GCL

Colabor Group Inc.

146

4.55

84.18

6.85

39

on or Around September 15, 2009

TSX:SRF

Sun-Rype Products Ltd.

TSX:CTY

Calian Technologies Ltd.

TSX:AHF

Aston Hill Financial Inc.

02/28/2007 (Special Dividend Announced) Sun-rype Products Ltd. Reports Earnings Results for the Fourth Quarter and Full Year Ended December 31, 2006 ; Declares Quarterly Dividend Payable on March 15, 2007 ; Announces Special Dividend 11/12/2009 (Special Dividend Announced) Calian Technologies Ltd. Declares Quarterly Dividend and Special Dividend Payable on December 9, 2009 03/11/2011 (Special Dividend Announced) Aston Hill Financial Inc Announces Special Cash Dividend, Payable on March 31, 2011 05/25/2009 (Special Dividend Announced) Hammond Power Solutions Inc. Declares Special Cash Dividend Payable on July 15, 2009 03/18/2011 (Special Dividend Announced) McCoy Corp. Reports Earnings Results for the Fourth Quarter and Full Year Ended December 31, 2010; Provides Earnings Guidance for the Full Year of 2011; Declares Special Dividend Payable on April 11, 2011; Announces Impairment Charge for the Fourth Quarter of 2010 04/13/2010 (Special Dividend Announced) Goodfellow Declares Special Dividend, Payable on May 14, 2010 11/19/2012 (Special Dividend Announced) Jovian Capital Corporation Announces Special Cash Dividend, Payable on

143

10.74

1.58

15.67

141

15.74

26.71

121

6.82

3.96

7.57

TSX:HPS.A

Hammond Power Solutions Inc.

104

17.59

10.46

24.01

TSX:MCB

McCoy Corp.

104

7.13

10.63

9.03

TSX:GDL

Goodfellow Inc.

100

6.71

21.39

8.29

TSX:JOV

Jovian Capital Corporation

83

-5.11

5.04

-7.13

40

December 13, 2012

TSX:CXS

Counsel Corporation

TSX:RYL

Royal Host Inc.

11/12/2012 (Special Dividend Announced) Counsel Corporation Reports Unaudited Consolidated Earnings Results for the Third Quarter and Nine Months Ended September 30, 2012; Declares Special Dividend, Payable on January 1, 2013 02/28/2009 (Special Dividend Announced) Royal Host REIT Announces Final 2008 Special Distribution, Payable on April 30, 2009 02/14/2012 (Special Dividend Announced) Consolidated HCI Holdings Corp. Announces Special Dividend, Payable on March 5, 2012 01/10/2012 (Special Dividend Announced) Gendis Inc. Declares Special Dividend, Payable on January 31, 2012 11/06/2012 (Special Dividend Announced) Automodular Corp. Announces Earnings Results for the Third Quarter and Nine Months September 30, 2012; Declares Quarterly Dividend and Special Dividend, Payable December 4, 2012 01/26/2009 (Special Dividend Announced) Premium Income Corp. Reports Earnings Results for the Year Ended October 31, 2008 ; Declares Ordinary and Special Distributions 03/09/2009 (Special Dividend Announced) General Donlee Income Fund Declares February Cash Distribution and Special Cash Distribution for

81

18.39

31.12

54

1.93

662.78

2.09

TSX:CXA.B

Consolidated HCI Holdings Corporation

53

0.92

10.56

0.98

TSX:GDS

Gendis Inc.

52

-8.04

18.61

-8.5

TSX:AM

Automodular Corp.

40

26.78

0.08

37.66

TSX:PIC.A

Premium Income Corporation

36

-9.98

362.62

-10.34

TSX:GDI

General Donlee Canada Inc

29

10.78

1164.51

12.15

41

the Year 2008 Payable on March 31, 2009 TSX:TVK TerraVest Capital Inc. 12/21/2011 (Special Dividend Announced) TerraVest Income Fund Declares Second Special Distribution Payable on January 11, 2012 03/21/2011 (Special Dividend Announced) Brompton Lifeco Split Corp. Suspends A Class Distribution 12/20/2011 (Special Dividend Announced) Dominion Citrus Limited Announces Special Distribution Payable on January 16, 2012; Announces Board of Trustees Appointments 03/19/2008 (Special Dividend Announced) Westshore Terminals Income Fund Declares Quarterly Cash Dividend and Special Dividend Payable on or Before April 15, 2008 25 4.73 19.96 5.66

TSX:LCS

Brompton Lifeco Split Corp.

10

1.56

225.2

1.6

TSX:DOM.UN

Dominion Citrus Limited

5.18

15.85

TSX:WTE

Westshore Terminals Investment Corporation

6.37

7.23

42

Appendix B: Earnings per Share and Signaling Effect

Earnings Per Share
Ticker TSX:YRI TSX:VRX TSX:CG TSX:HSE TSX:BNP TSX:BEI.UN TSX:RUS TSX:PEY TSX:SII TSX:SCL.A TSX:KEY TSX:TFI TSX:PD TSX:BIN TSX:GMP TSX:GNV TSX:FRU TSX:XSR TSX:CMG TSX:WJX TSX:CDL.A TSX:ARF TSX:HRX TSX:GLN TSX:CTU.A TSX:DCI TSX:FC TSX:AVF TSX:BRE TSX:MPC TSX:CSF TSX:PWC TSX:GCL TSX:SRF TSX:CTY TSX:AHF TSX:HPS.A TSX:MCB TSX:GDL TSX:JOV TSX:CXS TSX:RYL TSX:CXA.B TSX:GDS TSX:AM TSX:PIC.A TSX:GDI TSX:TVK TSX:LCS TSX:DOM.UN TSX:WTE (-1 quarter) 0.17 -0.1 0.58 0.64 1.77 1.02 1.45 0.54 0.07 0.45 0.55 0.64 0.68 0.2 0.38 -0.06 0.16 0.01 0.18 1.18 0.16 -0.52 0.21 0.01 0.25 -0.61 0.26 -2.28 0.04 0.08 0.07 0.08 0.12 0.11 0.58 0.01 0.36 0.07 0.24 0.1 0.56 -4.12 0.04 0.09 0.15 -0.39 0.18 -0.19 0.01 -0.04 0.15 announcement 0.2 0.02 0.3 0.77 1.09 15.1 0.48 0.37 0.04 0.49 0.6 0.24 0.3 0.11 0.33 0.62 0.29 0.02 0.12 0.95 0.17 0.37 3.68 0.01 0.39 0.25 0.26 -0.18 0.52 0.1 0.33 0.02 0.3 0.23 0.45 0.01 0.04 0.12 0.22 0.11 0.68 -0.07 0.01 -0.02 0.25 -0.04 0.02 0.14 -0.02 -0.04 0.43 (+1 Quart) 0.26 0.19 0.35 0.85 0.28 4.12 -0.92 0.37 0.06 0.48 0.42 0.31 0.23 0.18 0.25 0.38 0.2 0.89 0.16 0.77 0.25 0.43 0.15 0.1 0.49 0.28 0.27 0.01 0.85 0.06 0.13 0.01 0.53 0.11 0.44 0.02 0.01 0.11 0.45 0.1 0.65 0.06 0.01 -0.24 0.28 0.1 0.1 0.08 0.14 0.01 0.54 (+2 Quarts) 0.16 0.13 0.34 0.91 0.01 3.54 -0.41 0.69 0.03 0.44 0.54 0.33 0.26 0.21 0.11 0.54 0.23 0.02 0.2 0.99 0.32 0.29 0.22 0.08 0.23 0.32 0.24 -0.2 -0.34 0.03 0.32 0.04 0.1 -0.02 0.4 0 0.04 0.14 0.57 0.1 0.62 -0.1 0.03 0.21 0.2 -0.04 0.02 0.12 -0.19 0.02 0.56 t=0 17.65% -120.00% -48.28% 20.31% -38.42% 1380.39% -66.90% -31.48% -42.86% 8.89% 9.09% -62.50% -55.88% -45.00% -13.16% -1133.33% 81.25% 100.00% -33.33% -19.49% 6.25% -171.15% 1652.38% 0.00% 56.00% -140.98% 0.00% -92.11% 1200.00% 25.00% 371.43% -75.00% 150.00% 109.09% -22.41% 0.00% -88.89% 71.43% -8.33% 10.00% 21.43% -98.30% -75.00% -122.22% 66.67% -89.74% -88.89% -173.68% -300.00% 0.00% 186.67%

Growth
t=1 30.00% 850.00% 16.67% 10.39% -74.31% -72.72% -291.67% 0.00% 50.00% -2.04% -30.00% 29.17% -23.33% 63.64% -24.24% -38.71% -31.03% 4350.00% 33.33% -18.95% 47.06% 16.22% -95.92% 900.00% 25.64% 12.00% 3.85% -105.56% 63.46% -40.00% -60.61% -50.00% 76.67% -52.17% -2.22% 100.00% -75.00% -8.33% 104.55% -9.09% -4.41% -185.71% 0.00% 1100.00% 12.00% -350.00% 400.00% -42.86% -800.00% -125.00% 25.58% t=2 -38.46% -31.58% -2.86% 7.06% -96.43% -14.08% -55.43% 86.49% -50.00% -8.33% 28.57% 6.45% 13.04% 16.67% -56.00% 42.11% 15.00% -97.75% 25.00% 28.57% 28.00% -32.56% 46.67% -20.00% -53.06% 14.29% -11.11% -2100.00% -140.00% -50.00% 146.15% 300.00% -81.13% -118.18% -9.09% -100.00% 300.00% 27.27% 26.67% 0.00% -4.62% -266.67% 200.00% -187.50% -28.57% -140.00% -80.00% 50.00% -235.71% 100.00% 3.70%

43

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