The effects of dividend on stock price: Evidence from Nepalese commercial Banks

Abstract

The major objective of this study is to examine the effect of dividends on the share price of commercial banks in Nepal. To achieve this objective of the study, a descriptive and analytical research design has been administrated. Twelve commercial banks were taken as a sample to study out of 27 commercial banks. Samples were selected randomly. In order to obtain an adequate sample size sampling calculator developed by Daniel (1999) was used. Along with this, secondary data were used to carry out the research. All the data for the study were collected from the websites of different Banks as well as the Nepal Rastra Bank (NRB) website. Ten-year data has been collected from the fiscal year 2011/2012 to 2020/2021, so the total study period is ten years. Here, MPS is taken as dependent variables while EPS, DPS, DPR and DY are taken as independent variables. All the data collected from different sources have been analyzed using a correlation matrix and multiple panel data regression model namely the fixed-effect model and random effect model. The result of the Hausman test indicates that the random effect model is more relevant in describing the relationship among given variables. The result of the correlation matrix shows that DY is negatively correlated with MPS while all other variables EPS, DPS and DPR are positively correlated with MPS. Similarly, the Random effect model shows a positive significant relationship between DPS with MPS or a positive insignificant relationship with DPR and EPS while it presents a negative significant relationship between DY with MPS. Thus, after analyzing these results it can be concluded that dividend does affect the share price of commercial banks in Nepal.

Findings of this study will be useful for investors to take investment decision before investing in any stock. Moreover, it will be also essential for a manager to take a dividend decision and future student can use it as literature for their dissertation. Since this study has been conducted using 12 sample commercial banks and study period is 10 year, in the future other researchers can conduct study using more or other samples as well as using longer study period. Key words: - MPS, EPS, DPS, DPR and Econometric regression model.