Common stock investment analysis of commercial banks in Nepal

Abstract

The aim of the study is to investigate firm specific factors that influence the share price of Nepalese commercial banks. More specifically, it examines the relationship of the firm specific factors on the share price of Nepalese commercial banks. There is still a gap about the relationship of determinants with share price. This study attempts to construct the relation of MPS of the Nepalese commercial banks to the major financial indicators like EPS, DPR, DY, PER and ROA. This study is based on the secondary data which have been collected from five commercials banks by using convenient sampling method for the study period of 2013/14 to 2022/23. The main sources of data are banking and financial statistics published by NEPSE and annual report of different sample banks. The reliability and accuracy of that data may therefore, affect the robustness of the results of the present study. Similarly, it takes into account a few numbers of selected organizations (five listed commercial banks) from among the listed companies and only the latest available ten years data for analyzing the stock price determinants. Specifically, this study examined the effects of dividend payout ratio, dividend yield, earning per share, price- earnings ratio and return on asset on the share price of banks listed on Nepal stock exchange Limited. The findings of the study over the period 2013/14 to 2022/23 revealed that earning per share have the significant positive association with share price while dividend yield showed the significant inverse association with the share price of the banks. The study concludes that dividend yield, earnings per share, and dividend payout ratio are the major determinants of share price of Nepalese commercial banks. It has been found that the Earnings per share and dividend payout ratio have significant positive effect on the share price of Nepalese commercial banks. This means that when the price earnings ratio of the bank increases the market price per share of the bank also increases and vice versa. The results of this study uncovered new evidence in Nepalese perspective, which are considered to be valuable to the market participants. Thus, findings of this study seem to be particularly useful for equity investors and fund managers as they can watch out for these significant factors while estimating stock returns and predicting share prices.

Keywords: Dividend payout ratio, Dividend yield, Earnings per share, Price earnings ratio, Return on assets, Market price per share