Impact of Firm Specific Variables on Market Price of

Share of Laxmi bank Limited

BY
Satish Pandey

A Project Work Report submitted to Pokhara University in partial fulfillment of the requirements
for the degree of
Bachelor of Business Administration

at the
Kshitiz International College
Pokhara University

Butwal
July, 2021
 Declaration

I hereby declare that the Project Work Report entitled “Impact of Firm Specific Variables on
Market Price of Share of Laxmi bank Limited” submitted for the BBA degree is my original
work and the Project Work Report has not formed the basis for the award of any degree,
diploma, or other similar titles.

Signature:
Name of Student: Satish Pandey
July, 2021
 Acknowledgement

This study entitled “Impact of Firm Specific Variables on Market Price of Share of Laxmi
bank Limited” has been conducted to satisfy the partial requirements for the degree of Bachelor
of Business Administration, Pokhara University.

This study has not been possible with an overnight sole effort of the author. A long-time efforts
and inspiration of many benevolent creditors have made possible to bring this study into its
present form.

First of all, I am always indebted to my respected supervisor Lecturer Niraj Lacoul, who
provided valuable guidance to complete this project work in time. Similarly, I would like to
express my gratitude to Dr. Surya Rana, In-charge of Project Work at Kshitiz International
College, Butwal for his timely orientation for the report writing. I am also thankful to all my
respected faculty members for their precise support and instruction. Further, I would like to
acknowledge all the respondents, officials and authors for their grand support and backup.

Last but not least, I would like to express my warm respect to my parents Mr. Aniruddha Pandey
and Mrs. Bindavasni Pandey including my Friend Saif Ali khan and other classmate for their
affection and emotional support to pursue further study. Despite of sincere efforts made, the
chance of human error cannot be neglected. Therefore, I would also like to take full
responsibility of any kind of deficiency presented in this project work.

Satish Pandey
July, 2021
 Table of Contents

Declaration
Certificate
Acknowledgement

Chapter I: Introduction…………………………...…………………….(1-5)
1.1 General Background……………………………………………………………………….1
1.2 Objectives of the Study…………………………………………………………...…........3
1.3 Need and Scope of the Study…………………………………………………….……..…3
1.4 Research Methods Used…………………………………………………………………..4

Chapter II: Descriptive Analysis …………………………………....(6-9)

2.1 Analysis of …………………………………………………………………………..….6
2.2 Analysis of ………………………………………………………………………………7
2.3 Analysis of ………………………………………………………………………..........8
2.4 Main Findings and Discussion………………………………………………………….9

Chapter III: Summary and Conclusion………………..……….........(10-11)

3.1 Summary of the Findings…………………………………………………………….....10
3.2 Conclusion…………….……………………………………………………………......11

Bibliography
Appendices
 CHAPTER I: INTRODUCTION

1.1 General Background

The stock market has become an essential market playing a vital role in economic prosper that
fostering capital formation and sustaining economic growth. Stock markets are more than a place
to trade securities. They operate as a facilitator between savers and users of capital by means of
pooling of funds, sharing risk and transferring wealth. Stock markets are essential for economic
growth as they insure the flow of resources to the most productive investment opportunities.
Fama (1981) has suggested that the fundamental variables such as earning yield, size, book to
market value, cash flow yield and leverage are the important determinants of the stock return.

One of the major avenues of investment that has the potential of yielding considerable returns to
investors is the investment in equity shares. It is also a source of finance for the capital
requirements of firms. Returns from such equity investments are however subject to vary,
depending upon the performance of the particular stock and movement in stock price.
Fluctuation in stock prices July occur due to the supply and demand forces but there is no
foolproof or perfect system that indicates the exact movement of stock prices. The factors behind
the increase or decrease in the demand and supply of stock prices can be categorized into three
main types: technical factors, fundamental factors and market sentiments. However, knowledge
of such factors and their possible impact on share prices is highly appreciable as it would help
investors make wise investment decisions and enable firms to enhance their market value.

Stock market boom is the reflection of a progressing economy: as the economy improves,
companies make more money, and their stock value rises in accordance with the increase in their
intrinsic value. A major assumption underlying this belief is that consumer confidence and
consequent consumer spending are drivers of economic growth. Investors normally buy shares
from listed companies that are expected to record strong growth rates in their earnings and pay
good dividends. Therefore, most of the investors are looking for profitable companies to invest
and get more returns. This makes expectations about earnings growth and dividend payments as
key drivers of a company’s stock price. It means expectations of the market have an impact on
prices of the shares of the listed companies. Falling share prices can hamper firm’s ability to
raise finance on the stock market. Firms who are expanding and wish to borrow often do so by
issuing shares. It provides a low cost way of borrowing more money. However, with falling
share prices, it becomes much more difficult. Therefore, listed companies pay high attention on
price changes in shares.

Normally there are two types of investors in the market as risk averse and risk taker investors.
Risk taker investors always prefer to take the risk through investing in the risky investment. But
in case of risk averse investors, they always prefer to invest their fund in riskless of low risk
investments. Somehow, their main objective of investing money in shares is to have more
returns. Returns consists of two sections namely dividend earned annually and the capital gain
received as a result of rising stock prices. So investors highly consider any change in stock price
which July significantly affect the returns of the inventors.

The pioneering work on share price determinants by Collins (1957) for the US identified
dividend, net profit, operating earnings and book value as the factors influencing share prices.
Following Collins (1957) there have been various attempts to identify the determinants of share
prices for different markets. The other empirical studies viz. Taulbee (2005), Nawazish (2008),
Al-Shubiri (2010), Sharma (2011), Khan and Amanullah (2012), Srinivasan (2012), Malhotra
and Tandon (2013), Almumani (2014) among others reveal that various factors in different
markets determine the share price. Determining share prices is a complex and conflicting task.
Shiller (1981) found that stock prices are not stable and fluctuate excessively in relation to the
news about fundamentals (as dividends) primarily due to market irrationality. Thus, it is asserted
that understanding the impact of various fundamental variables on stock price is very much
helpful to investors as it will help them in taking profitable investment decisions.

The present study deals with an attempt to analyze the determinants of share price of commercial
banks on the basis of financial statements information in Nepalese context. The objective of this
study is to examine the impact of the internal factor on the stock prices of Nepalese commercial
bank.
1.2 Objectives of the Study
The main objective of this study is to analyze the firm specific determinants of share price of
Laxmi bank Limited over the period 2060/61-2076/77 . The specific objectives of this study are
as follows:

a. To analyze the effect of price-earnings ratio on stock price of Laxmi bank Limited over
the period 2060/61-2076/77 .
b. To examine the impact of market-to-book ratio on the stock price of Laxmi bank Limited
over the period 2060/61-2076/77 .
c. To investigate the relationship between operating efficiency and stock price of Laxmi
bank Limited over the period 2060/61-2076/77 .
d. To assess the bank size effect on stock price of Laxmi bank Limited over the period
2060/61-2076/77 .

1.3 Need and Scope of Study

The study of the firm’s specific variables that affect the share prices of firm has been a subject of
great interest these days. Moreover, it is a subject of immense curiosity especially a banking
sector to identify the factors that influence share prices. The shares of commercial banks offer
the investment opportunities to Nepalese investors because these shares are more frequently
traded in the market than as compared to others in Nepalese context. There have been various
attempts to identify the determinants of share prices for different market. Most of the studies
lacks closer examination or depth study about what type of specific variables affect the market
price of share.

In this study close examination has been carried out to understand which specific variable affect
the market price of share. Knowing the factors affecting the stock market price helps to predict
the fluctuation of stock price in the share market and risk also minimize. To find out the factors
affecting stock market price is very necessary to the investors as well as to the firms itself too. In
order to improve those area and attract the investor to invest in the firm.
1.4 Research Methods Used

Study Design
This study adopts descriptive, correlation and causal comparative research design. The
descriptive research design has been used to describe the nature of variables, such as Market
price of share, Price earnings ratio, Market to book ratio, Operating efficiency, Bank size. The
correlation research design has been used to identify the direction and magnitude of the observed
relationship between different pairs of variables used in the study. Finally, the study also uses
causal comparative research design to examine the effect size of independent variables, such as
price earnings ratio (PE), Market to book ratio (MBR), Operating efficiency (OE), Bank size. On
dependent variable such as Market price of share (MPS)

Nature and Sources of Data

There are two types of data to be used for study purpose. They are primary and secondary data.
However, this study completely relies on secondary sources of data. The required data for this
study have been derived from audited financial statements of Laxmi bank incorporated in its
annual report of the year 2060/61-2076/77 as available in its official websites. The study period
has been confined to the year 2060/61-2076/77 to this based on the data available in the official
websites.

Population and Sample

The population of this study consists of 27 commercial banks licensed by Nepal Rastra Bank in
Nepal. This study is a case study on impact of firm’s specific variables on market price of share
with special reference to Prabhu Bank. So, the sample of this study constitutes only Laxmi
bankas a case study.
Method of Data Analysis
The method of data analysis in this study consists of descriptive, correlation, and regression
analysis. The descriptive analysis has been done by using the descriptive statistics such as mean,
standard deviation, and minimum and maximum values of the variables of interest over the study
period to identify the nature of the variables. Similarly, the study also uses correlation analysis to
identify the direction and magnitude of the observed relationship between each pairs of variables
of interest using Pearson bivariate correlation coefficient. Finally, this study also uses simple
regression analysis to examine the effect of PE, MBR, OE, Bank size on MPS over the period
2060/61-2076/77.
 Chapter III: Summary and Conclusion

3.1 Summary of the finding

Stock market boom is the reflection of a progressing economy: as the economy improves,
companies make more money, and their stock value rises in accordance with the increase in their
intrinsic value. A major assumption underlying this belief is that consumer confidence and
consequent consumer spending are drivers of economic growth. Investors normally buy shares
from listed companies that are expected to record strong growth rates in their earnings and pay
good dividends. Therefore, most of the investors are looking for profitable companies to invest
and get more returns. This makes expectations about earnings growth and dividend payments as
key drivers of a company’s stock price. It means expectations of the market have an impact on
prices of the shares of the listed companies. Falling share prices can hamper firm’s ability to
raise finance on the stock market. Firms who are expanding and wish to borrow often do so by
issuing shares. It provides a low cost way of borrowing more money. However, with falling
share prices, it becomes much more difficult. Therefore, listed companies pay high attention on
price changes in shares.

The method of data analysis in this study consists of descriptive, correlation, and regression
analysis. The descriptive analysis has been done by using the descriptive statistics such as mean,
standard deviation, and minimum and maximum values of the variables of interest over the study
period to identify the nature of the variables. Similarly, the study also uses correlation analysis to
identify the direction and magnitude of the observed relationship between each pairs of variables
of interest using Pearson bivariate correlation coefficient. Finally, this study also uses simple
regression analysis to examine the effect of PE, MBR, OE, Bank size on MPS over the period
2060/61-2076/77.

The present study deals with an attempt to analyze the determinants of share price of commercial
banks on the basis of financial statements information in Nepalese context. The objective of this
study is to examine the impact of the internal factor on the stock prices of Nepalese commercial
bank.

3.2 Conclusion
The study of the impact of firm’s specific variables on market price of share has been a subject
of great interest these days. Moreover, it is a subject of immense curiosity especially a banking
sector to identify the factors that influence share prices. The shares of commercial banks offer
the investment opportunities to Nepalese investors because these shares are more frequently
traded in the market than as compared to others in Nepalese context. Specifically, this study
examined the effects of Market price per share, Market to book ratio, Price- earnings ratio,
Operating efficiency and Bank size on the share price of Prabhu bank.

The findings of the study over the period 2060/61-2076/77 revealed that Price earnings ratio (PE)
and Market to book ratio (MBR) have the significant positive association with Market price per
share (LnMPS) while Operating Efficiency (OE) and Bank Size (Size) showed the significant
inverse association with the Market price per share of the bank. The study concludes that price
earnings ratio, Market to book ratio, Operating efficiency and Bank size are the major firm’s
specific variables that affect the market price per share of Prabhu bank. The results of this study
uncovered new evidence in Nepalese perspective, which are considered to be valuable to the
market participants. Thus, findings of the this study seems 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.
 Bibliography

LBL ( 2060/61-2076/77), Annual report, (2060/61-2076/77), Kathmandu: Laxmi bankLimited

Rana S. B. (2009). Financial management, Kathmandu: Asmita Publication.

www.nrb.org.np

Shiller, R.(1981). Do stock prices move too much to be justified by subsequent changes in
dividends? American Economic Review, 71, 421–436.

Arkan, T. (2016). The importance of financial ratios in predicting stock price trends: A case
study in emerging markets. Finance, Rynki Finansowe, Ubezpieczenia, 79(1), 13-26.

Dutta, A., Bandopadhyay, G., & Sengupta, S. (2012). Prediction of stock performance in indian
stock market using logistic regression. International Journal of Business and Information, 7(1).

Collins, J. (1957). How to study the behavior of bank stocks. The Analysts Journal, 13(2), 109-
113.

Malhotra, V.(1). Determinants of equity prices in India (Unpublished doctoral dissertation).

Himachal University, India.

Zahir, M., & Khanna, Y. (1982). Determinants of stock prices in India. The Chartered
Accountant, 30, 521-523.

Piotroski, J.D. & Roulstone, B. (2004). The influence of analysts, institutional investors, and
insiders on the incorporation of market, industry, and firm – specific information into stock
prices. The Accounting Review, 79, 1119-1151.
 Appendices

Laxmi Bank is the 16th commercial bank in Nepal, founded in 2002. In 2004 Laxmi Bank
merged with HISEF Finance Limited, a first-generation finance company. This is the first merger
in Nepali corporate history. In 2016, the Bank also acquired Professional Diyalo Bikas Bank, a
regional development Bank.
Data of Laxmi Bank

Fiscal Other Opn.

Year MPS EPS BVPS Interest Exp. Exp. Staff Exp. Total operating exp
2060l61 156 1.9 101.28 63176634 35729976 19198174 118104784
2061l62 285 4.34 98.86 118438529 37122391 29933955 185494875
2062l63 368 5.8 106.4 190589535 50122992 37640491 278353018
2063l64 690 10.75 115.66 280277851 63547498 48785260 392610609
2064l65 1113 16.45 125.44 421871791 83848664 63994813 569715268
2065l66 1062 20.7 122.23 712348311 112972785 86407247 911728343
2066l67 570 24.12 118.52 1135609890 142169232 122405630 1400184752
2067l68 340 23.25 130.97 1503851025 169294370 157662248 1830807643
2068l69 340 21.55 135.78 16366423205 194842563 181669953 16742935721
2069l70 309 24.78 160.59 1448740824 240502808 217395368 1906639000
2070l71 588 26.07 162.96 1667026765 265703864 239996869 2172727498
2071l72 400 19.42 177.36 1623894404 322379964 314878457 2261152825
2072l73 876 27.15 185.88 1796205547 363819537 385933683 2545958767
2073l74 390 21.7 140.76 3057115564 485647278 508684035 4051446877
2074l75 258 14.37 135.71 4731488622 112686534 771585009 5615760165
2075l76 226 17.82 141.8 5772996490 666061270 1133814344 7572872104