EFFECT OF DIVIDEND PRACTICES ON SHAREHOLDER’S WEALTH OF INSURANCE COMPANIES

Abstract

The objectives of the study are to assess the impact of EPS, DPS, P/E ratio, DY and DPR on MPS of insurance companies, to compare the relationship between dividend practice and shareholders’ wealth and to examine the current position of EPS, DPS, P/E ratio, DY and DPR (dividend practice) and MPS (shareholders’ wealth) in insurance companies. This study is based on secondary data of Nepalese Insurance Companies. Descriptive and casual comparative research design is used to meet the objectives. EPS, DPS, DY, DPR, P/E ratio are independent variables and MPS is dependent variable. Population of the study is 37 insurance companies and sample of the study is 10 insurance companies: Shikhar Insurance Company Limited (SICL), National Life Insurance Company ltd (NLICL), Sagarmatha Insurance Company limited (SIC), Neco insurance company limited (NIL), National Life General Insurance Company limited (NLG), Siddhartha Insurance Company limited (SIL), Asian Life Insurance Company limited (ALIC), Nepal Insurance Company limited (NICL), Prabhu Insurance Company limited (PRIN), Premier Insurance Company limited (PIC). Secondary data are collected from the annual report of the insurance companies. The descriptive statistic analysis, correlation analysis, regression and multiple regression analysis are used to achieve objectives of the study. There is insignificant positive relationship between MPS and EPS. The relationship between MPS and DPS are highly positively and significant. It is found that the MPS and P/E ratio are positively significant. Moreover, MPS and DY are highly negative and statistically significant with each other. Similarly, there is a negative and insignificant relationship between MPS and DPR. The study concluded that financial indicators determining MPS are different from one insurance company to another. This study examines the factors affecting dividend practice in Nepalese insurance companies, highlighting variables like investment opportunities, firm size, and profit rates, growth rates, debt obligation, legal rules and regulations, etc. Despite these influences, maximum insurance companies do not follow a consistent dividend strategy. This inconsistency could potentially harm their share market price due to the resulting uncertainty and risk. Key words: MPS, EPS, DPS, DY, P/E ratio and DPR