DIVIDEND PRACTICES OF LIFE INSURANCE COMPANIES IN NEPAL

Abstract

Dividend practice is the entire managerial practice to determine how much net income will be paid out as dividends and how much net profit can be maintained for company. The dividend practice is one of the most debated topics within corporate finance and some academics have called the company’s dividend practice an unsolved puzzle. Although there were lots of research on dividend practice but there are few studies conducted on countries like Nepal especially in insurance industry. There is no uniformity in the result about the factors affecting dividend practice. The main purpose of the study was to investigate the relationship between the dividend practice and company’s selected factors in Nepalese life insurance companies. Based on the literature review, five variables were taken for the study. The independent variables taken for the study are dividend payout ratio of previous year, leverage ratio, profitability ratio (i.e. EPS and ROA), Risk, liquidity and the dependent variable is dividend practice. Three life insurance companies were taken as sample for the study. Secondary data are used for data collection. Financial statements of ten years from 2070/71 to 2079/80 of three life insurance companies are considered for data collection. Different statistical and financial tools are used for the data analysis. Descriptive statistics is done in descriptive analysis. At last, inferential analysis is done through correlation and regression which helped to determine the level of significance of dividend practice with Dividend Payout ratio of previous year, Leverage, profitability, risk and Liquidity. The study reveals NLIC as the best performer amongst the three companies as it has performed better in 4 factors among 7 factors considered. Dividend payout ratio of previous year, leverage and EPS are the most influencing factor of dividend practices because they are significant on the study of life insurance companies in both correlation and regression analysis. In conclusion, Nepalese firms have to give priority in Dividend payout of previous year, leverage and EPS for taking dividend decision. At the same time, it will also help all the stakeholders like shareholders, promoters, general public, managers and the researchers to make their decision accordingly relating to dividend practice.