Impact of Dividend on Market Price of Commercial Banks in Nepal

Abstract

ABSTRACT Dividend is a kind of earnings that the shareholders expect from their investment. But the dividend decision is still a fundamental as well as controversial area of managerial function. The main purpose of this study is to assess the impact of dividend payout ratio, leverage, return on assets, price earnings ratio and size on market price per share of stock. In this study descriptive and causal comparative research design is followed and the sample for the study are selected as joint venture commercial banks of Nepal. This study in based on secondary data collected form the annual reports of sample banks from 2011/12 to 2020/21. The data are analyzed using descriptive statistical tools, correlation and multiple regression analysis. The relationship analysis found that MPS of Nepalese commercial banks significantly increases when DPR (i.e. 0.342) of the stock increases. On the other hand, MPS of the banks increases with the increment in ROA (i.e.0.217) of the stocks. For most MPS of the stock is significantly increases when PE ratio (0.539) of the stock increases. The analysis using the variables in multiple regression model found that return on assets (i.e. 709), leverage (i.e. 0.140), price earnings ratio (i.e. 0.031) and bank size (i.e. 0.406) have significant positive effect on market price per share. Leverage of the banks and dividend related factors are motivating factors to increase market price per share of the banking sectors. That’s why, dividend and leverage of the banks have significant impact of market price of stock of Nepalese joint venture commercial banks. This study reflects historical scenarios of stock dividends and market prices per share. This is beneficial for investors interested in investing in the stock market, bank management can take information from this study to make good payout decisions and further research on this topic using other industry and macroeconomic variables is warranted for more reliable results. Keywords: Dividend Payout Ratio, Return on Assets, Leverage, PE Ratio, Market Price per Share