DIVIDEND POLICY AND ITS IMPACT ON SHARE PRICE OF NEPAL

BANK LIMITED AND NEPAL SBI BANK

Submitted by:
Santosh ghimire
TU Registration No: 7-2-2-258-20178
Exam Roll No: 21571/18

A Summer Project Report

Submitted to:
Faculty of Management
Tribhuvan University
in the partial fulfillment of the requirement for the degree of
Bachelor of Business Administration

Mechi Multiple Campus

Bhadrapur, Jhapa

February, 2023
 Student’s Declaration

This is to certify that I have completed the summer project entitled “Dividend Policy

and its Impact on Share Price of Nepal Bank Limited and Nepal SBI Bank”

under the guidance of Mr.Ankit Pokheral in partial fulfillment of the requirement for

the degree of Bachelor of Business Administration at Faculty of Management,

Tribhuvan University. This is my original work and I have not submitted it earlier

elsewhere.

Santosh Ghimire

21571/18

ii
 Certificate from the Supervisor

This is to certify that the summer project entitled “Dividend Policy and its Impact on

Share Price of Nepal Bank Limited and Nepal SBI Bank” is an academic work done

by Santosh ghimire submitted in the partial fulfillment of the requirement for the

degree of Bachelor of Business Administration at faculty of Management, Tribhuvan

University under my guidance and supervision. To the best of my knowledge, the

information presented by him in the summer project report has not been submitted

earlier elsewhere.

Signature of Supervisor

Name: Ankit Pokheral

Designation: Teaching Assistant

Date: Feburary, 2023

iii
 Certificate from Research Head

We, hereby endorse the project work entitled “Dividend Policy and its Impact on

Share Price of Nepal Bank Limited and Nepal SBI Bank” submitted by Santosh

Ghimireof BBA program, Mechi Multiple Campus, Bhadrapur for the partial

fulfillment of the requirements for award of the Bachelor of Business Administration

(BBA) for external evaluation.

…………………………… …………………………..

Harish prashad Luitel Santosh Ghimire

Chairperson BBA Director

Management Research Head

iv
 Acknowledgement

This study is to examine the impact of dividend policy on share price of commercial banks.
This report has been prepared to fulfill the partial requirement for the BBA degree of
Tribhuwan University. Successfully completion of any type of project requires helps and
guidance from a number of people. We have also taken help from different people for the
preparation of this report. Now, there is a little effort to show our deep gratitude to those
helpful people. would like to express special thanks of gratitude to Mechi Multiple Campus
Management team; the BBA program coordinator Mr.Netra Baral and Project
coordinator Mr. Harish Luitel for their guidance and motivation.

I am grateful to my supervisor, Mr.Ankit pokhrel, for the continuous support throughout the
research whose expertise, understanding, patience, motivation, generous guidance and
immense knowledge made it possible for me to work on a topic that was of great interest to
me. On every phase of project, their supervision and guidance shaped this report to be
completed perfectly.

Furthermore, we would like to thank Tribhuwan University, Faculty of Management for

providing such a golden opportunity to prepare this report. The efforts put into this report is
not of a single person but includes many input from other individuals .We would like to take
this opportunity to thank them all for their time and advice to sharpen the contents of this
report and finalizing this project within the limited time frame.

We’ve put in our all possible strength to make this report error free and as good as it can be
within the limited time frame, however there might be some mistakes done in course we
apologize for any mistakes (if found) and look for any sort of comments, criticisms which
will help us generate better reports in the days to come.

Santosh Ghimire

21571/18
 Table of Contents

Student’s Declaration.....................................................................................................ii

Certificate from the Supervisor.....................................................................................iii

Certificate from Research Head....................................................................................iv

Acknowledgement..........................................................................................................v

List of Tables...............................................................................................................viii

List of Figures................................................................................................................ix

List of Abbreviation........................................................................................................x

Executive Summary......................................................................................................xi

Chapter 1: Introduction...............................................................................................1

Background of the Study............................................................................................1

Forms of dividend...................................................................................................2

Factors affecting dividend policy...........................................................................3

Statement of the Problem............................................................................................6

Objectives of the Study...............................................................................................7

Rationale of the Study.................................................................................................7

Literature Review.......................................................................................................8

Research Methodology.............................................................................................12

Research design.....................................................................................................13

Population and sample..........................................................................................13

Sources of data and data collection technique......................................................13

Tools for data presentation and analysis...............................................................13

vi
 Limitations of the Study............................................................................................18

Chapter 2: Data Presentation and Analysis.............................................................19

Analysis of Individual Banks....................................................................................19

Analysis of Financial Variables................................................................................21

Correlation Analysis.................................................................................................34

Findings.....................................................................................................................36

Chapter 3: Summary, Conclusion and Action Implications...................................38

Summary...................................................................................................................38

Conclusion................................................................................................................39

Action Implications...................................................................................................40

Bibliography

Appendices

vii
 List of Tables

Table 1 Comparative Earning Price per Share of Sample Banks.................................21

Table 2 Comparative Dividend per Share of Sample Banks........................................23

Table 3 Comparative Dividend Payout Ratio of Sample Banks..................................25

Table 4 Comparative Market Price per Share of Sample Banks..................................27

Table 5 Comparative Price Earning Ratio of Sample Banks........................................29

Table 6 Comparative Dividend Yield of Sample Banks..............................................31

Table 7 Comparative Net Worth per Share of Sample Banks......................................33

Table 8 Correlation Coefficient of Nepal Bank Limited..............................................35

Table 9 Correlation Coefficient of Nepal SBI Bank....................................................35

viii
 List of Figures

Figure 1. Comparative earning per share of sample banks...........................................22

Figure 2. Comparative dividend per share of sample banks........................................24

Figure 3. Comparative dividend payout ratio of sample banks....................................26

Figure 4. Comparative market price per share of sample banks..................................28

Figure 5. Comparative price earning ratio of sample banks.........................................30

Figure 6. Comparative dividend yield of sample banks...............................................32

Figure 7. Comparative net worth per share of sample banks........................................34

ix
 List of Abbreviation

AGM Annual General Meeting

CV Coefficient of Variation

DPR Dividend Payout Ratio

DPS Dividend per Share

DY Dividend Yield

EPS Earning per Share

FY Fiscal Year

MPS Market Price per Share

NBL Nepal Bank Limited

NEPSE Nepal Stock Exchange

NRB Nepal Rastriya Bank

NSBI Nepal State Bank of India

NWPS Net Worth per Share

P/E Price-Earning Ratio

SD Standard Deviation

SEBON Securities Board of Nepal

x
 Executive Summary

The dividend policy decision affects on the operation and prosperity of the

organization because it has the power to influence other two critical decision of the

organization, i.e. capital structure and investment decision. Dividend policy is

considered as one of the important and critical variables affecting the share price.

The major resolution of the study is to review the dividend policy of the selected

sample banks and the measurement of the effect of dividend decision on the market

price of stock. The study of relationship between the dividend and stock prices have

been accomplished by collecting and calculating the market price per share, earning

per share, dividend per share, dividend payout ratio, dividend yield, price earning

ratio and net worth per share from annual report of two commercial banks listed in

NEPSE, i.e. NBL and NSBI during the 5 year study period from FY 2073/74 to

2077/78. Mean. SD, CV, correlation were used as data analysis techniques. Findings

reveal that the dividend payment of NSBI was found to be more consistent than that

of NBL. Furthermore, the MPS of NBL were found to be positively correlated with

DPS, DPR and P/E ratio and negatively with EPS, DY and NWPS. The MPS of

NSBI were found to be positively correlated with EPS and DPS and negatively

correlated with DPR, P/E ratio, DY and NWPS.

xi
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Chapter 1: Introduction

Background of the Study

Dividend policy is a very important topic in financial management and in corporate

type of business. Dividend policy determines the division of earnings between payments to
stockholders and reinvestment in the firm. Generally, while the company operates in profit, it
will be capable to pay the dividend regularly.Dividend policy is one of the most important
financial policies, not only form the viewpoint of the company, but also from that of the
shareholders, the consumers, the workers, regulatory bodies and the Government. For a
company, it is a pivotal policy around which other financial policies rotate. The portion out
the earnings made by the firm that shareholders obtain as return to their investment in shares
is referred to as “Dividend”. In other words, it is the shareholder’s earning instead of
investment that provide equity towards the company whereas “policy” is decision regarding
action. Therefore dividend policy is one of the most important financial decisions because it
directly affects the financial structure of the company. Wealth maximization is the major
objective of the dividend policy.

Dividend policy determines the allocation of net profit between payments to

shareholders and re-investment in the firm. In other words, dividend policy can be

defined as dividing the earning between dividend and retention. The sharing kept, as

reserve by the company is known as retained earnings. Retained earning is one of the

most significance sources of funds required for company growth. At the end of the

fiscal year, management has to decide how much money should be kept as retention

and how much should be distributed to the shareholder. This is the important aspect of

the dividend policy. In our country, there is no similar way on dividend distribution.

Usually dividends are paid monthly, quarterly, semi-annually or annually. But in

Nepal, it paid annually. Some companies may pay whole earnings within the year as

dividend, whereas in some companies the dividend is not announced. Actually the

usual dividend payout ratio seems to be 40 percent. Thus, in short, the decision to
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keep some portion to retention and some to dividend made regarding earnings is

known to be “Dividend Policy”.

Dividend can be distributed to the shareholders by banks in the form of cash,

shares or both. Some bank pay dividend the whole amount of profit for good image,

some retain all amounts for reinvestment and some partially pay the amount as

dividend.

The study is focused on reviewing the dividend policy of the selected sample

banks and the measurement of the effect of dividend decision on the market price of

stock.

Forms of dividend. Generally, dividends are paid in cash but when the

company is unable to pay cash dividend, they use different forms of dividend payment

for satisfying stockholders. Such forms of dividends are stock dividend, scrip

dividend, property dividend, bond dividend etc. But in Nepalese context, most of the

companies are paying cash and stock dividend (bonus share).

Cash dividend. Cash dividend may be termed as portion of earning paid in

cash to the owner of the firm as return on their equity investment. If company doesn’t

have enough cash at the time of dividend payment, company seeks to arrange funds,

which will be managed by borrowing. When the company follows stable dividend

policy, they use to prepare cash budget to indicate the necessary funds which would

be needed to meet regular dividend payment of the company. The cash account and

the reserve account of the company will be reduced when cash dividend is paid. Thus,

both the total assets and the net worth of the company are reduced when the cash

dividend is distributed. The market price of share drops in most cases by the amount

of the cash dividend distributed.

 3

Stock Dividend. If additional shares are issued to existing shareholders instead

of cash dividend is known as stock dividend. A stock dividend represents a

distribution of shares in lieu of or in addition to the cash dividend to the existing

shareholders. When stockholder receive stock dividend, the number of shares

increases but as it is paid to existing shareholders on their proportion of their share

holding, It doesn’t affect the ownership of the company. Stock dividend increases

number of shares as a result, market price of share of the company decreases.

Scrip Dividend. If the company have not sufficient amount of cash for dividend

payment, Company may issue scrip or notes promising to pay dividend within the

maturity period. So Scrip dividend is those paid in the company promises to pay

instead of cash. These dividends may be interest bearing or non-interest bearing.

When the company has sufficient cash then it is distributed to stockholders.

Property Dividend. If payments are made in the form of property or assets

rather than cash, it is called property dividend. When the company has unnecessary or

useless assets for the operation of business, it is distributed in the form of property

dividend.

Bond Dividend. When the company generates more profit for a long time, it is

better to issue bonds, which carries certain interest rate. But there should be other

constraints to issue bonds. It is issued in the form of bond dividend for existing

shareholders.

Factors affecting dividend policy. The company's decision regarding the

dividend payment may (extremely) affect by different factors. Therefore, it is

desirable to consider some of the factors that influence dividend policy which are as

follows.
 4

Legal restrictions. All the companies are bounded by certain legal restrictions

for dividend payment. These constraints are:

i. Company can pay dividend from the earnings of current year or past year.

ii. Company cannot pay dividend if the liabilities of the company exceeds

assets.

iii. Dividend cannot be paid if the amount of dividend to be distributed

exceeds net profit.

iv. Dividend cannot be paid from the capital invested in the firm.

Liquidity position. Liquidity position (Availability of cash) of the firm is an

important consideration for dividend payment. Although a firm may have adequate

earning to declare dividend, but it may not have sufficient cash to pay. The dividend

payment means cash outflow. Thus, the greater cash position and overall liquidity of a

company, the greater ability to pay dividend. Generally growing firm faces the

problem of liquidity even though it makes good profit but it needs funds for its

expansion. So, they cannot declare dividend.

Investment opportunities. The dividend policy is also influenced by the

financial needs of the company. If any profitable project found, company invests its

earnings to that project rather than paying dividend. A growing firm gives precedence

to the retention of earnings over the payment of dividend in order to finance its

expanding activities. But the firm having stable earnings trends will prefer to pay

larger portion of its earnings as dividend. When the investment opportunities arise

infrequently, company follows a policy of paying dividend and raises external funds

when the investment opportunity occurs.

Access to capital market. A company having insufficient cash can pay

dividend, if it is able to raise fund in capital market. Because they can generate fund
 5

from the capital market whenever it is required. Easy accessibility to the capital

market provides flexibility to the management in paying dividends as well in meeting

corporate obligation. Thus, greater the ability of the firm to raise funds in the capital

market, the greater will be its ability to pay dividends even it is not liquid.

Control. If the company pays access cash dividend, There will be the shortage

of fund to finance investment opportunities, which must be fulfilled by issuing new

securities. This affects the control position of existing stockholders. So, they are not

desirable to distribute the earnings as dividend, which prevents them to lose the

control position to the company.

Inflation. This is another constraint for dividend payment. Cost of replacing

assets increases substantially due to inflation and the funds generated by depreciation

would be inadequate to replace the assets. So, the greater profit retention may be

required for the companies on order to make replacement or to maintain the capital

intact which will reduce dividend payment.

Stability of earning. If the companies have stable earnings they can predict its

approximately future earnings. Such firm likely to payout a higher percentage of its

earning as dividend. If the earning is unstable they used to retain higher percentage of

earning.

Past dividends. The firm has to maintain its past dividend payout rate. If

current dividend payout ratio is less than past year rate, the market price of stock will

decline.

Rates of assets expansion. Any growing firm needs expansion on its assets.

For this the firm should retain profit, which affects the dividend payment.
 6

Statement of the Problem

Dividend policy is one of the widely researched topics in the field of finance

but the question is whether dividend policy affects stock price still remain debatable

among managers, policy makers and researchers for many years. A number of studies

on impact of dividends on stock price have been carried out in different parts of the

world particularly in developed countries. Most of the earlier studies show the

significant role of dividend policy on stock price. The corporate firms should follow

the appropriate dividend policy to maximize the shareholders' value. Dividend policy

is considered as one of the important and critical variables affecting the share price.

Dividend is the most inspiring factor for the investment on the share of the

company is thus desirable from the stockholder's point of view. In one hand the

payment of dividend decreases the internal financing required for making investment

in golden opportunities. This will hamper the growth of the firm, which in turn affects

the value of the stock. There may be various factors that cause fluctuation in share

price.Dividend decision is pivotal as well as controversial area of financial

management. However, there are ambiguities among the financial experts regarding

the impact of dividends on the valuation of a firm. In fact, the financial community

has not any conclusive and simple understanding. There is contradiction and confuse

relationship between the market and share price and dividend per share. Thus, it is not

easy to say whether the dividend decision effect positively or negatively. It remains a

puzzle.So, this study is focused at assessing the dividend decision practices of Nepal

Bank Limited and Nepal SBI Bank impacting the market price of stock and wealth

position of the shareholders.

In this research, we are trying to get the answer of the following questions:

i. How is the trend of prevailing practices and factors affecting dividend policy?
ii. What are the major factors that affect the dividend and valuation of the firm’s
stock?
iii. What is the effect of EPS, DPS, DPR, DY, P/E ratio, NWPS on MPS?
 7

Objectives of the Study

The major objectives of the study is to obtain the knowledge about the

dividend policies of sampled commercial banks and find out whether the followed

policy is appropriate or not and which policy is better.

The specific objectives of the research are:

i. To analyze the prevailing practices and effort made in dividend policy by

the banks.

ii. To e x a m i n e the relationship between EPS, DPS, DPR, DY, P/E

ratio, NWPS and MPS.

Rationale of the Study

Dividend policy decision is one of the most important decisions in every

organization. This study is expected to fill the research gap and add to the inputs to

financial literature relating to the dividend policy.

Dividend policy is the controversial topic of financial management. It may affect

value of the firm. Moreover, most common objective of the firm is to maximize

shareholder's wealth. So, management may adopt appropriate dividend policy.

Shareholders are more concerned with the amount of dividend paid by firm. So, they

have more curiosity on the dividend policy adopted by their concerned banks. With

this study they can make their mind more comparable in terms of dividend pattern and

value of the firm.

Generally, most of the investors prefer to invest in profitable firm and expect high

return. Corporate sector is expanding but there is information gap between the

management of Nepalese companies and Nepalese investors who are eager to invest

in shares. They are just investing in the shares in trial and error methods. So, the
 8

dividend behavior should be effective to attract new investors keeping the previous

investors satisfied and should maintain the reputation of the firm.

It can be used by researcher as guideline to study in similar topic. Beside this, it

will also be beneficial for the policy makers from the comparative study of dividend

policy. They can get important findings, which are useful in policy making about

dividend policy formation.

Literature Review

The purpose of this study is to examine the impact of dividend policy on the

share price of commercial bank in Nepal. The study is based on pooled cross sectional

data of 10 commercial banks. Banks were selected on the basis of their performance

on stock market of Nepal, i.e. top gainers and top losers and data are collected from

Nepalese commercial banks listed in NEPSE from the F/Y 2012/13 to F/Y 2016/17.

The paper investigates the relationship between dividend announcement, EPS, P/E

ratio, DPR, on stock price by using Descriptive Statistics, Correlation and Regression,

ANOVA and Wilcoxon Signed Rank Test. The articles conclude that except DPR, the

other factors like EPS, P/E ratio have positive relationship with stock price among

them P/E is the strongest factor that affects the share price in case of top gainer

commercial banks whereas EPS, P/E ratio and DPR have positive influence on stock

price among them DPR is the strongest factor that affects the share price in case of top

loser bank. (Baral & Pradhan, 2018)

The basic resolution of this study is to investigate the relationship between

dividend policy and firm performance. Design/methodology-the sample contain on 15

manufacturing companies in the year of 2014 to 2017. Time series data were

calculated from the financial statement of the selected manufacturing firms.

Return on asset
 9

(ROA) and return on equity (ROE) were used as dependent variables while dividend

payout ratio (DPOR), earning per share (EPS), price earnings ratio (PER) were

modeled as independent variables. Multiple regressions like correlation, descriptive

were used as data analysis techniques. Findings reveal that all the independent

variable have a positive relationship with dependent variables. Dividend payout ratio,

earning per share, price earnings ratio positively influence return on investment.

(Hafeez, Shahbaz, Iftikhar, & Butt, 2018)

This research investigates the determinant of dividend policy for a sample of

non-financial companies in Jordan over the period 2005–2016. This study

concentrates on some variables that effect the dividend pay-out ratio and the dividend

yield such as: Company size, risk, investment opportunities, historical dividend,

profitability and leverage. This study used the panel dataset of non-financial

companies in Jordan. The results show that company size showed significant positive

impact, which could solve the free cash flow problem, mature and large companies

were paying more and consistent dividends. The return on equity was positive and

significant, that firms with high profitability were paying larger consistent dividend

pay-outs. The impact of historical dividends always positive and significant and sign

posts that firms trend of dividend payout rather than the random paying. Risk has a

negative impact on the payout levels. The analysis was depending on some theories

that affect the dividend policy such as: Dividends irrelevance theory, bird in hand

theory, pecking order theory, agency problems and signaling theory. (Jaara, Alashhab,

& Jaara, 2018)

The basic aim of this study is to investigate that whether the dividend policy

makes an impact on the firm performance in Pakistan especially in cement sector.

Data used have been collected from annual reports of the sample companies and
 1

website of Pakistan Stock Exchange from 2012 to 2016. The results of OLS indicate

that there is an insignificant positive relationship between return on equity (ROE) and

Dividend per share (DPS) which imply that by increasing cost dividend per share,

return on equity increases for the selected companies. Furthermore, a significant

positive relationship between earning per share (EPS) and return-on-equity (ROE)

was found. In the case of firm size, significant relationship was found with ROE and

financial leverage showed an insignificant relationship with firm performance (ROE).

Hence this study supports the relevant theories of dividend policy. (Rahman, 2018)

This study has examined the effect of dividend payment on stock prices of

commercial banks in Nepal. The study has adopted causal comparative research

design. The secondary data of six commercial banks were collected during 7 years

(2010 to 2016) period. Data were analyzed using both descriptive and inferential

statistics. From the empirical analysis this study found a significant positive

relationship between share price and dividend payment. This study concludes that

payment of dividend positively affect share price of Nepalese commercial banks.

(Bhattarai, 2016)

The purpose of this paper is to examine the determinants of firms’ dividend

policy, measured by dividend yield, using a sample of firms that belong to the

Euronext 100 index for a period between 2007 and 2016. We used OLS regression

with the dividend yield as the dependent variable and a number of explanatory

variables at the firm level. Results show that the dividend yield in this paper is not

associated with firms’ profitability, although both higher growth expectations by

investors and larger size of firms negatively influence firms’ dividend yield. We

found some evidence that leverage is indirectly related to more dividends. An

important additional finding of this paper is that the level of leverage shapes dividend
 1

yields differently in the presence of stable payouts and stable dividends per share.

Furthermore, the dividend yield reflects a positive valuation of investors if the growth

in dividends is linked to the growth in earnings for firms with higher growth

expectations, as a policy of a stable payout appears to be viewed by investors as not

jeopardizing future growth. As dividend policy is a key part of Finance research, our

study contributes to the theory twofold. First, by focusing on a specific niche not

developed by literature, and second by examining the indirect effects of the traditional

determinants of dividend policy. (Ahmed, Barros, & Sarmento, 2018)

The study investigates the effects of dividend policy on financial performance

of quoted manufacturing firms in Nigeria. The objective of the study is to review the

theoretical and empirical literature underpinning dividend policy and financial

performance. This was necessitated by the desire to determine the relevance or

irrelevance of dividend on financial performance of firms. From the review of the

available literature, it was discovered that dividend policy is an important decision

area of any business organization, it was also discovered that previous studies on the

effect of dividend policy on financial performance has not adequately captured quoted

manufacturing firms in Nigeria. The study recommends that further studies should be

carried out to exhaustively examine the relationship between dividend policy and

financial performance with emphasis on quoted manufacturing firms in Nigeria.

(Zayol, Mwanger, & Stephanie, 2017)

This study investigates the relationship between financial performance and

dividend policy for a sample of fifteen Deposit Money Banks quoted on the Nigeria

Stock Exchange 2009 to 2014. Panel data regression analysis was used as the method

of analysis, and the model was estimated using the Pooled Least Squares estimation

technique. The study revealed that there is a positive and significant relationship
 1

between dividend payout ratio and financial performance. On the contrary, there is a

negative and insignificant relationship between dividend yield and financial

performance. The study recommends that since there is a positive and significant

relationship between dividend payout ratio and financial performance, firms should

strive to maintain healthy and a stable dividend policies. This could be attained by

investing in projects that give positive Net Present Values, thereby generating huge

earnings, which can be partly used to pay dividends to their equity shareholders. It is

also recommended that since dividend yield is not affected by financial performance,

investigations should be made to ascertain other factors that affect dividend yield.

(Idewele & Murad, 2017)

“There is negative relation between the stock-return and debt-equity ratio. As

the firm goes out for debt, its value is affected by stock-return. Size of the firm affects

the market value of the firm whereas somewhere, it remains insignificant.” claimed

(Bhuva & Vyas, 2015).

(Dhungel, 2013) confirmed that “there is mostly positive relationship between

market price of share (MPS) and earning per share (EPS). Also, a positive relationship

had been observed between MPS and dividend per share (DPS) in commercial banks

in Nepal.”

Research Methodology

In order to achieve the objective mentioned above following research

methodology was followed. In this study the procedure concerning the research

includes research design, nature and source of data and collection procedure, tools

used for analysis.

 1

Research design. Research design is the plan, structure and strategy of

investigation conceived so as to obtain answer to research question and to control

variances. Research design helps researcher to enable him to keep track of action and

to know whether he was moving in the right direction to achieve his goal. This study

is carried out by using quantitative analysis method. Mostly, secondary data has been

used for analysis; hence, research design of this study is based on descriptive and

correlational.

Population and sample. This study was conducted by assuming all "A" class

commercial banks of Nepal as the population. There are 22 commercial banks in the

country as January 2023.

Sampling (Random Probability Sampling) is done and following two banks was

taken as sample for study:

i. Nepal Bank Limited

ii. Nepal SBI Bank

Sources of data and data collection technique. The study is primarily based on

secondary sources of data. The secondary data collected from annual reports from

fiscal year 2074/75 to 2078/79, magazines and bulletins of the banks under study,

relevant information and data from the publication of SEBON, NEPSE, NRB and

web pages of the selected banks, previous studies, thesis and dissertation related to the

research topic are used.

Tools for data presentation and analysis. Collected data are analyzed and

interpreted with the help of various fundamental financial and statistical tools.

Following tools are used while conducting this research.

Financial tools. The study is based on the analysis of the following financial tools

(variables).

 Earning per Share (EPS).

 1

EPS is calculated to know the earning capacity and to make comparison between

concerned companies. It is defined as the result received by dividing net profit after taxes

by no. of common stock outstanding. In other words, this is the amount of money each

share of stock would receive if all of the profits were distributed to the outstanding

shareholders at the end of the year.

Net Profit available to equityholders

EPS =
Number of common shares outstanding

 Dividend per Share (DPS).

The part of earnings distributed to the shareholders as per share basis is known

as DPS. It is the amount calculated by dividing the total dividend with total numbers

of share outstanding. DPS is calculated by dividing the total dividends paid out by a

business, including interim dividends, over a period of time, usually a year, by the

number of outstanding ordinary shares issued.

Total Dividend
DPS =
Number of common shares outstanding

 Dividend Pay-out Ratio (DPR).

The percentage of the profit on share that is distributed as dividend is called

dividend pay- out ratio (DPR). Similarly, the percentage of amount of earning

retained as reserve and surplus for the growth of the bank is called the retention ratio

(RR). Higher earning enhances the ability to pay more dividends and vice versa.

Dividend pay-out ratio is the result received by dividing DPS by EPS.

Dividend per Share (DPS)

DPR =
Earning per Share (EPS)

 Market Price of Share (MPS).

 1

MPS is the value of stock, which can be obtained by a firm from the market.

Market value of stock is one of the variables, which is affected by the dividend per

share and earnings per share of the firm. If the EPS and DPS is high, the MPS will

also be high. MPS is influenced by supply and demand. Hence, MPS may be lower or

higher than the book value.

 P/E Ratio.

P/E Ratio expresses the relationship between a company’s share price and

earning per share (EPS). It denotes what the market is willing to pay for a company’s

profit. It is calculated using following formula.

Market Price of Share (MPS)

PE Ratio =
Earning per Share (EPS)

 Dividend Yield (DY).

Dividend yield may defined as the ratio of dividend per share to the market

value per share that shows how much a company pays out in dividends each year

related to its stock price. Dividend Yield is the result obtained by dividing DPS by the

MPS.

Dividend per Share (DPS)

DY =
Market Price per Share (MPS)

 Net Worth per Share (NWPS).

Net Worth Per Share is a measurement of the net worth of the company for

each share of stock that has been issued. Since, stock dividends are cash the company

pays out to shareholders, this value cannot be included in a company’s net worth.

NWPS is calculated by dividing book value of net worth by total number of shares

outstanding.
 1

Net Worth
NWPS =
Number of shares outstanding

Statistical tools. For the presentation & proper analysis of the data to get the

objective of the study, following statistical tools are used in this research.

 Arithmetic Mean (x̄ ).

The arithmetic mean or average is the sum of total values to the number of

observations in the sample. It represents the entire data which lies almost between the

two extremes. For this reason an average is frequently referred to as a measure of

central tendency. In this study, it is used in data related to dividend of sample

companies over different years. It is calculated as.

∑
X Arithmetic Mean (x̄ ) =
N

where,

ΣX= Sum of the values of the observations

N= Total number of observations

 Standard Deviation (σ).

The measurement of the scatter ness of the mass of figures in a series about an

average is known as dispersion. The standard deviation (S.D.) is an absolute

measurement of dispersion in which the drawbacks present in other measures of

dispersion are removed. The high amount of dispersion reflects high standard

deviation. The small standard deviation means the high degree of homogeneity of the

observations. It is calculated for selected dependent and independent variables

 1

specified. It is the positive square root of mean squared deviation from the arithmetic

mean. It is denoted by σ and calculated as.

2 2
Standard Deviation (σ) = √ (Σ(x − x̄ )
N−1

where,

Σ(x − x̄ )2= Sum of the mean deviation square

N= Total number of observations

 Coefficient of Variation (C.V.).

The coefficient of variables reflect the relation between standard deviation and

mean .The relative measure of dispersion based on the standard deviation is known as

coefficient of standard deviation. The coefficient of dispersion based on standard

deviation multiplied by 100 is known as the c.v. It is used for comparing variability of

two distributions.

S. D. (σ)
Coefficient of Variation (C. V. ) X100%
= Mean (x̄ )

 Coefficient of Correlation (r).

Correlation Analysis is the statistical tools that we can use to describe the

degree to which one variable is linearly related to another. Coefficient of correlation is

the measurement of the degree of relationship between two casually related sets of

figures whether positive or negative. Its value lies somewhere ranging between –1 to

+1. If the both variables are constantly changing in the similar direction, the value of

coefficient will be +1 indicative of perfect positive correlation, when the coefficient

will be –1 two variables take place in opposite direction. The correlation is said to be
 1

perfect negative. In this study, simple coefficient of correlation is used to examine the

relationship of different factors of dividend and market price of shares.

NΣXY − ΣXΣY
Coefficient of Correlation (r) =
√NΣX2 − (ΣX)2√NΣY2 − (ΣY)2

where,

r = coefficient of correlation

X = independent variable

Y = dependent variable

N = number of periods

Limitations of the Study

 The research should be done in a very short period. Minimizing error to full extent

cannot be done due to less time for analysis of data.

 The study is based on secondary data like annual reports of selected banks,
website of Nepal Stock Exchange, other related journals, etc. So, the reliability of

the study depends upon the accuracy of the secondary data.

 Only 5 year data will be taken which may not be sufficient to reach the

generalizable conclusion.

 Only limited tools and techniques are used for analysis, so this study may not be

sufficient for depth analysis.

 This study doesn’t consider all the other related forces that influence the market

price of shares of commercial banks.

 1

Chapter 2: Data Presentation and Analysis

The purpose of this chapter is to carry out secondary data analysis. In this

chapter, the relevant data and information regarding dividend policy of commercial

banks are presented and analyzed comparatively. The chapter begins with the

descriptive analysis of earning per share, dividend per share, dividend payout ratio,

market price per share, dividend yield, price earning ratio and net worth per share

analysis of the sample banks and then explanatory analysis is followed at the end of

the chapter using statistical tools of correlation analysis.

Analysis of Individual Banks

As the study has taken a special reference to listed commercial banks; among

22 commercial banks operating in Nepal, only 21 commercial banks are listed in

NEPSE. Among those, study has taken 2 sample commercial banks.

1. Nepal Bank Limited (NBL)

Nepal Bank is the first commercial bank of Nepal, established in 1994 Kartik

30. This marked the beginning of an era of formal banking in Nepal. Until then all

monetary transactions were carried out by private dealers and trading center. From the

very conception and its creation, NBL was as joint venture between the government

and the private sector. Out of 2500 equity shares of NPR 100 face value, 60% was

subscribed by the government and the balanced 40% was offered for the sale to

private sector. There were only 10 shareholders when the bank first started. The bank

has been providing various banking services to its customers through branches

national wide. Its central office is at new Dharmapath, Kathamandu. Bank’s

authorized capital, issued capital and paid up capital are Rs.15,000,000,000/-,

Rs.12,636,758,624/-, and Rs.12,636,758,624 /-respectively. The no. of equity share is

 2

144,059,048.27; no. of staff are 2504 according to the bank’s annual report FY

2078/79.

2. Nepal SBI Bank Limited (NSBI)

Nepal SBI Bank Limited (NSBI) is the first Indo-Nepal joint venture in the

financial sector sponsored by three institutional promoters, namely State Bank of

India (SBI), Employees Provident Fund and Agricultural Development Bank of Nepal

through a memorandum of understanding signed on 17 July 1992.

NSBI was incorporated as public limited company since 28 April 1993 with an

authorized capital of Rs. 120 million and was licensed by Nepal Rastra Bank on 6

July 1993. NSBI commenced operation with effect from 7 July 1993 with one full-

fledged office at Durbar Marg, Kathmandu with 18 staff members. The staff strength

has since increased to 967 as on Ashar, 2078 on NSBI working in 88 branches, 3

extension counters and 1395 Provincial Offices. Under the Banks & Financial

Institutions Act, 2063, Nepal Rastra Bank granted fresh license to NSBI classifying it

as an "A" class licensed institution on 26 April 2006. The authorized capital is Rs.

1500 crore and paid up capital is Rs. 949.36 crore. The no. of equity share is

94,935,779 according to annual report of FY 2078/79.

 2

Analysis of Financial Variables

Table 1

Comparative Earning Price per Share of Sample Banks

Fiscal Year NBL NSBI

2074/75
39.98 25.16
2075/76 26.99 27.13

2076/77 20.68 17.23

2077/78 23.43 10.15

2078/79 20.29 16.67

Mean 26.27 19.268

S.D. 8.12 6.90

C.V.% 30.89 35.82

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

The data in Table 1 shows the average EPS of NBL and NSBI to be 26.97 and

19.268 respectively during the 5 year period from 2074/75 to 2078/79. The EPS of

NBL stayed within the range of 20.68 to 39.98 whereas EPS of NSBI ranged in

between in 10.15 to 27.13 The level of fluctuation as indicated by C.V. shows the

greater fluctuation of EPS of NSBI as compared to that of NBL.

 2

Figure 1. Comparative earning per share of sample banks

As illustrated in Figure 1, the EPS of NBL is higher than that of NSBI for

every study period whereas a slightly higher EPS of NSBI was observed during the

FY 2075/76. Figure 1 depicts that the EPS of NBL gradually increased in the FY

2074/75 which leveled off to 20.68 and then risen up in the consecutive FY of

2077/78 reaching to 23.43.Afterward in the recent previous fiscal year it gradually

starts to fall and reaches to the point 20.29.EPS for NSBI can be seen following the

downward trend from 25.16 in FY 2074/75 to 10.15 in FY 2077/78.But in the recent

previous fiscal year EPS tends to rise upward. During the study period, the EPS of

NBL have the higher consistency as compared to NSBI.

 2

Table 2

Comparative Dividend per Share of Sample Banks

Fiscal Year NBL NSBI

2074/75 0.00 15.79

2075/76 25.00 16.84

2076/77 16.00 9.47

2077/78 17.00 5.31

2078/79 12.00 10.53

Mean 14.00 11.58

S.D. 8.18 4.24

C.V.% 58.37 36.66

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

The data in Table 2 shows the dividend per share of the sample banks for the

period of 2074/75 to 2078/79. The DPS of NBL for initial years was recorded to be 0

despite of some earnings refers the fund was fully retained for future investment

purpose. After first year full retention of the earnings, dividend of Rs. 25, Rs. 16 ,

Rs.17 and RS.12 per share was provided to the shareholders from FY 2075/76 to

2078/79 . so, NBL comprising of certain DPR and retention ratio. Similarly, the DPS

of NSBI is found to be downward sloping from 16.84 to 5.31 during the study period

and increase in the fiscal year 2078/79. The average DPS of the two sample bank

illustrates the higher dividend per share of NSBI accounting for 12.75 to that of 8.20

of NBL. 58.37% of CV of NBL shows the higher degree of fluctuation in the

dividend payment whereas NSBI has a relatively moderate degree of variation in their

DPS.
 2

Figure 2. Comparative dividend per share of sample banks

The comparative study of DPS of sample banks are represented in Figure 2. It

can be observed that the initial DPS of NBL was nil for the fiscal year and the curve

roughly shapes ‘M’ as dividend starts with nil and grows up stagnate and again

decreases whereas the constant dividend payment can be seen in the case of NSBI

with a maximum DPS of Rs. 16.84 and a minimum of Rs. 5.31. The dividend

payment of NBL is always higher then NSBI . The maximum DPS offered by the two

banks can be seen during the fiscal year of 2075/76 reporting the DPS of Rs. 15 and

Rs. 16.84 for NBL and NSBI respectively.

 2

Table 3

Comparative Dividend Payout Ratio of Sample Banks

Fiscal Year NBL NSBI

0.00
2074/75 62.76
2075/76 92.62 62.07

2076/77 77.36 54.96

2077/78 72.55 52.32

2078/79 59.14 63.16

Mean 60.29 59.04

S.D. 35.77 5.03

C.V.% 59.32 8.53

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

Table 3 displays the comparative DPR of the sample banks under study

period. It can be observed that the initial DPR of NBL was 0 during the first study

afterward from FY 2075/76 it gradually decreases from 92.62 % to 59.14%. The final

DPR of 59.14% which is lowest in the study period and 92.62% in FY 2075/76 of

NBL is the highest recorded DPR during the 5 year study period. For NSBI with an

average DPR of 56.19% compared higher to that of average DPR of 34.67% of NBL.

Also, the analysis of the degree of variation shows the higher degree of fluctuation in

DPR of NBL can be depicted then NSBI and average of DPR is slightly greater for

NBL.
 2

Figure 3. Comparative dividend payout ratio of sample banks

Figure 3 portrays the trend of DPR of the sample banks. As discussed earlier

about DPS in Table 2 and Figure 2 accounting for 0 for NBL in the initial years,

results in the DPR of 0 which consecutively rises up to 92.62% in the FY 2075/76

which gradually decreases to 59.14% in the FY 2077/78.so, the curve is upward

sloping at beginning and start to slop downward. In case of NSBI, low degree of

variation can be seen during the 5 year period due to slight changes in DPR ranging

from 54.96% to 62.76% with a CV of 9.69%.But in the final study year the DPR of

NSBI is higher then NBL.

 2

Table 4

Comparative Market Price per Share of Sample Banks

Fiscal Year NBL NSBI

2074/75 281.00 499.00

2075/76 336.00 469.00

2076/77 249.00 435.00

2077/78 443.00 409.00

2078/79 268 282.30

Mean 315.4 418.46

S.D. 78.33 83.58

C.V.% 24.33 19.95

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

Table 4 shows the comparison between the market price of shares of sample

commercial banks during the study year. The table depicts that the average price of

shares of NSBI is higher that of NBL, i.e. Rs. 418.46 and Rs.315.4. The market price

of NBL is seen to be so inconsistent as it continuous to increase and decrease.

Similarly, the MPS of NSBI have been decreasing continuously over the last 5 years.

The decreasing ratio certainly rises by about double in FY 2078/79. The degree of

fluctuation of MPS of NBL is higher than NSBI indicating greater variation in the

market prices of the NBL shares.

 2

Figure 4. Comparative market price per share of sample banks

The Figure 4 illustrates the trend or pattern of market price changes of NBL

and NSBI during the FY 2073/74 to FY 2077/78. On studying the MPS of these two

banks over the 5 year period, the MPS of NBL have been continuously decreasing to

a level just below the current market price of NSBI. The MPS of NSBI have been

found to be decreasing from Rs. 499 from Rs. 409 in the FY 2077/78 which shows a

consistent downward slope curve but in the FY 2078/79 it certainly downward to

282.30. In case of NBL, the market price fluctuation is greater as compared to NSBI

with an average market price of Rs. 315.4 which is reflected by a unstable

curve.During the FY 2078/79 both banks MPS is close and connected.

 2

Table 5

Comparative Price Earning Ratio of Sample Banks

Fiscal Year NBL NSBI

2074/75 7.03 19.83

2075/76 12.45 17.29

2076/77 12.04 25.24

2077/78 18.90 40.30

2078/79 13.21 16.93

Mean 12.72 23.91

S.D. 4.22 9.74

C.V.% 33.18 40.72

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

Table 5 illustrates the comparative study of P/E ratio of sample banks for the

study period. For every year during the study period, the P/E ratio of NSBI have been

found higher than the P/E ratio of NBL. Hence, the average P/E ratio of NSBI, i.e.

23.93 is found to be higher than that of NBL, i.e. 12.72. The degree of fluctuation of

P/E ratio is found to be a bit higher of NSBL as compared to NBL. The PE ratio is the

reflection of EPS and MPS of both the bank.In comparison of PE ratio NSBL is found

to be better option then NBL for risk averse investor.

 3

Figure 5. Comparative price earning ratio of sample banks

Figure 5 shows the trend analysis of P/E ratio of the sample banks over the 5

year study period. The change is P/E ratio is very much similar during every year

except for the FY 2075/76, where the change is P/E ratio moves in exact opposite

direction. Other than this fiscal year, P/E ratio is found to be moderately fluctuated

higher upward in FY 2078/79 for both bank and decreases to next FY 2078/79 with an

overall average P/E ratio of 12.72 and 23.91 for NBL and NSBI respectively. The

curve of NSBI is upper then NBL reflects that, NSBI PE ratio is always higher then

NBL during the study period.

 3

Table 6

Comparative Dividend Yield of Sample Banks

Fiscal Year NBL NSBI

2074/75 0.00 3.16

2075/76 7.44 3.59

2076/77 6.42 2.18

2077/78 3.38 1.30

2078/79 4.47 3.73

Mean 4.43 2.79

S.D. 2.87 1.03

C.V.% 64.81 36.93

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

Table 6 illustrates the pattern of change or comparative study of dividend yield

of the sample banks from FY 2074/75 to FY 2078/79. It is found that the initial year,

dividend payout equals zero resulting in nil DY in the first fiscal year studied. And

then the DY of NBL is found to be peak at 4.82 in the FY 2076/77. Also, in case of

NSBI, DY is found to be peak at 3.73 during the FY 2078/79 and the minimum was

found to be recorded at 1.3 during the FY 2077/78, averaging to a mean value of

2.79 for the overall study period. The larger coefficient of variation of NBL indicates

the greater fluctuation of DY. However, high fluctuations of DY have been found,

resulting in 64.81% for NBL and moderate fluctuations of 36.93% for NSBI

respectively.
 3

Figure 6. Comparative dividend yield of sample banks

Figure 6 illustrates the comparison between the dividend yield of two banks

under study. It is clear that the highest as well as lowest DY is recorded for NBL and

found to be fluctuating more that of NSBI. The DY of NBL is found to be peak during

the FY 2075/76 and that of NSBI during the FY 2078/79. The shape of both the curve

is same which indicate both the company dividend moves in same direction.Except

FY 2074/75 in every FY dividend yield of NBl is higher then NSBI.

 3

Table 7

Comparative Net Worth per Share of Sample Banks

Fiscal Year NBL NSBI

2074/75 285.63 159.08

2075/76 298.45 167.52

2076/77 266.17 165.05

2077/78 262.85 162.22

2078/79 246.17 174.16

Mean 271.85 165.60

S.D. 20.43 5.73

C.V.% 7.51 3.46

(Source: Annual Report of NBL and NSBI 2074/75-2078/79)

In Table 7, net worth per share (NWPS) is compared between the two sample

banks during the study years. It is clear that the average NWPS of NBL is higher than

that of NSBI, i.e. 271.85>165.60. Despite generating higher NWPS, NBL is found to

be fluctuating more in comparing with NSBI. The NWPS for both banks was found to

be peaking during the FY 2075/76 and .

 3

Figure 7. Comparative net worth per share of sample banks

In the comparative study of NWPS of NBL and NSBI as illustrated in Figure

7, greater degree of variation is found to be for NBL shares than NSBI shares. The

growth in NWPS of NSBI stocks is almost linear in nature, i.e. negligible growth rate.

Whereas, the NWPS of NBL stocks grows at a rapid rate during the FY 2075/76 and

then a gradual linear movement in the forthcoming years of study.These curve of both

banks shows that NWPS doesn't fluctuate more over the time.

Correlation Analysis

Correlation analysis helps to determine the strength of the linear relationship

between two variables. In other words, as to how strongly are these two variables

correlated. It helps to determine whether a positive or negative relationship exists

between two variables and the relationship is significant or not.

In this study, the correlation analysis is referred to identify the relationship

between MPS and other variables like EPS, DPS, DPR, P/E Ratio, DY and NWPS

determine whether the relationship is significant or not.

 3

Table 8

Correlation Coefficient of Nepal Bank Limited

Variables EPS DPS DPR P/E ratio DY NWPS

MPS -0.0647 0.3677 0.2876 0.7561 0.0042 0.0782

Relationship Negative Positive Positive Positive Positive Positive

The relationship or the effect of EPS, DPS, DPR, P/E ratio, DY and NWPS on

MPS is illustrated in Table 8. As calculated and shown in Table 8, the MPS of NBL

shares are found to be positively correlated with DPS, DPR, NWPS, DY and P/E ratio

and negatively correlated with only EPS.

Table 9

Correlation Coefficient of Nepal SBI Bank

Variables EPS DPS DPR P/E ratio DY NWPS

MPS 0.5539 0.4862 -0.0665 0.0473 -0.1559 -0.8202

Relationship Positive Positive Negative Positive Negative Negative

The relationship or the effect of EPS, DPS, DPR, P/E ratio, DY and NWPS on

MPS is illustrated in Table 9. As calculated and shown in Table 9, the MPS of NSBI

shares are found to be positively correlated with EPS and DPS and negatively

correlated with DPR, P/E ratio, DY and NWPS.

 3

Findings

The available secondary data of two sample banks from FY 2073/74 to

2077/78 were analyzed and following findings were obtained using several financial

and statistical tools. The major findings of the research work are summarized below.

1. The average earning per share of NBL and NSBI were found to be almost

similar, i.e. Rs. 29.97 and Rs. 22.62 respectively. However, comparatively

NSBI shares had lower average EPS with high degree of fluctuation.

2. The dividend payment of NSBI was found to be more consistent than that of

NBL during the five year study period. The average dividend per share

accounted for NBL and NSBI were found to be Rs. 8.2 and Rs. 12.75 per

share respectively.

3. The average DPR of NSBI (56.19%) was found to be greater than NBL

(34.67%). Higher degree of fluctuation was seen in case of DPR of NBL.

4. The average market price per share of NSBI was calculated to be higher than

that of NBL during the five year study period, i.e. Rs. 547.40>Rs. 334.60.

However, low level of fluctuation was seen for the MPS of NBL stocks.

5. In case of P/E ratio, the study or analysis depicted that NSBI stocks are found

to be leading in P/E ratio with 26.06 to that of NBL (11.96). The degree of

variation of P/E ratio is higher for NBL compared to NSBI during the study

period.

6. Comparing the DY of banks under study, NBL possesses a slightly greater DY

than NSBI, i.e. 2.49>2.40. NBL stocks had higher degree of fluctuation during

the study period.

 3

7. The analysis of NWPS of two sample banks showed that the average NWPS

of NBL was higher than NSBI (251.09>161.21). However, with high level of

NWPS, NBL stocks were fluctuating to a greater level during the study period.

8. Analyzing the correlation coefficient, the stocks of NBL showed a specific

relationship. The MPS of NBL were found to be positively correlated with

DPS, DPR and P/E ratio and negatively with EPS, DY and NWPS.

9. Also the analysis of correlation coefficient of the variables under study, it was

found that the MPS of NSBI were found to be positively correlated with EPS

and DPS and negatively correlated with DPR, P/E ratio, DY and NWPS.
 3

Chapter 3: Summary, Conclusion and Action Implications

Summary

Dividend refers to distributed earnings to the shareholders of the company in

return to their investment. Dividend decision is a major financial management

decision because the firm has to choose between distributing the profit to the

shareholders or reinvesting it to finance the business. The dividend policy decision

affects on the operation and prosperity of the organization because it has the power to

influence other two decision of the organization, i.e. capital structure and investment

decision.

The dividend may be affected by different factors such as earning of the firm,

liquidity position of the firm; net worth etc. these factors indicate the financial

position of the company. If a firm has good performance in terms of these factors, it

will be able to provide return in form of dividend.

This study mainly aims the prevailing practices of listed companies regarding

dividend payment. The study is mainly focused to access the dividend policy and its

impact on market price in banks. Instability of dividend and haphazard payout ratio is

the most common practice of Nepalese companies. Companies do not adequately

maintain cash balance for dividend payment. So, it covers some specific objectives to

find out the relationship between other financial indicators and also to find out the

appropriate dividend policies for different banks. The study of relationship between

the dividend and stock prices have been accomplished by collecting and calculating

the market price per share, earning per share, dividend per share, dividend payout

ratio, dividend yield, price earning ratio and net worth per share.
 3

This study is mainly based on the secondary data of two commercial banks,

which are listed in NEPSE. This study covers a period of five years from 2073/74 to

2077/78. To make the research reliable, many more analysis are conducted to find out

the appropriate relationship between dividend and other variables, which affects the

dividend. The consistency of dividend distribution of different companies is also

analyzed by using statistical tools like mean, SD, CV and correlation coefficient.

Conclusion

From the analysis of various financial indicators and statistical tools of all the

sample banks, following conclusions are drawn.

1. Above mentioned major findings led this study conclude that the earnings per

share of banks said to be satisfactory and somewhat similar. Among sample

banks NBL is in leading position in terms of earning per share than that of

NSBI.

2. It is found from the study that there is no consistency found in dividend

distribution in both sample banks. The research shows that none of these

banks have well defined and appropriate policy regarding dividend payment

with larger fluctuations. Most of the companies don’t seem to follow the

optimum dividend policy of paying regular dividends per shareholder’s

expectation.

3. It is also found from the study that there is positive and significant relationship

between market price of share and earning per share for NSBI and negative

relationship for NBL. It means that it is not necessarily to create a larger MPS

respective to the EPS of the firm in context of Nepalese commercial banks.

From the analysis, it is found that the market price of stock is affected by
 4

several other variables operating in unison which indicate about the rational

behavior of investors before investing.

4. Another major finding revealed that the MPS is found to be negatively

correlated with the Net Worth per Share (NWPS) of both commercial banks

under study.

5. It is also found that the market price per share of the sample banks under study

is negatively correlated with the dividend yield (DY).

6. In case of relationship between MPS and DPR, a conflicting result is found.

There is positive relationship for NBL whereas negative for NSBI. Similarly,

clashing conclusion is deducted from the established relationship between

MPS and P/E ratio where a positive relationship is found in NBL and negative

in NSBI. This might be due to the study of the variables for a short time

interval under the influence of several other factors affecting the MPS

synchronously.

Action Implications

From the analysis, it is found that NBL and NSBI haven’t followed a relevant

and appropriate dividend policy. The DPS of these companies are highly fluctuating.

This fluctuation in dividend distribution may cause uncertainty among stockholders.

So, all sample companies to satisfy investors and to create goodwill of the company

should follow the constant dividend payout ratio policy.

Additional variables like GDP, inflation, size of the banks, etc. should be

included for better understanding of dividend policy affecting factor.

The study deals with only examining and analyzing the dividend practices of 2

sample banks for a period covering 5 years from 2073/74 to 2077/78 due to limited
 4

time period. If a large sample is taken for the whole population the result might vary

and be more accurate and absolute. So, dividend policy may be subject of further

study, which can be more appropriate. Data from quarterly or monthly report should

be included for study since huge fluctuations can be seen in yearly data.

Shareholders should be given an option to choose between stock dividend and

cash dividend instead of declaring stock or cash dividend arbitrary. For this, dividend

declaration should be proposed to the AGM of shareholders for approval. The legal

rules and regulations must be in favor of investors to exercise the dividend practice

and to protect shareholder’s right. The NEPSE and SEBON should properly handle,

guide and inform the shareholders and the related companies about the market price

increase or decrease from the impact of dividend declaration.

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 Appendices

Appendix A

Annual Reports of NBL and NSBI

A1. Annual Report of Nepal Bank Limited 2077/78

A2. Annual Report of Nepal SBI Bank Limited 2077/78