DETERMINANTS OF STOCK PRICE OF COMMERCIAL BANKS IN NEPAL

Abstract

This study explores the determinants influencing the common stock prices of commercial banks in Nepal, emphasizing both bank-specific financial metrics and macroeconomic variables. Key financial indicators such as Market Price per Share (MPS), Price-to-Book Ratio (P/BR), Return on Equity (ROE), Earnings Per Share (EPS), Dividend Per Share (DPS), and leverage (LEV) are examined for their impact on stock price movements. Additionally, external macroeconomic factors like Gross Domestic Product (GDP) growth and inflation (INF) are assessed for their role in shaping market dynamics. The analysis reveals that profitability measures like ROE and EPS significantly enhance stock valuations, reflecting investor confidence in a bank's financial health. DPS and P/BR further influence investor decisions by indicating shareholder returns and market perceptions of a bank's intrinsic value. Leverage, representing financial risk, is a critical factor, with excessive debt levels potentially deterring investor interest. Macroeconomic variables like GDP and inflation are found to impact stock prices indirectly, reflecting the broader economic environment's influence on banking sector performance. The findings highlight the need for strategic financial management within banks and suggest that policy interventions can stabilize the stock market. Investors, regulators, and bank management can benefit from understanding these determinants, ensuring informed decision-making and fostering a more efficient financial ecosystem. This study contributes to the growing body of knowledge on Nepal's financial market, offering a framework for evaluating of the study.