CHAPTER-I

INTRODUCTION

1.1. Background of the Study

Dividend payout has been an issue of interest in financial literature. Academician and
researchers have developed many theoretical models describing the factors that
managers should consider when making dividend policy decisions. By dividend
policy, we mean the payout policy that managers follow in deciding the size and
pattern of cash distribution to shareholders over time. 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. Value of the corporate securities depends to a great extent on dividend
and, therefore, in deciding upon the financial structure of company, dividend has to be
assigned due to consideration. Dividends are payments made by corporations to its
shareholder members. It is the portion of corporate profits paid out to stockholders.
When a corporation earns a profit or surplus, that money can be put to two uses: it can
either be re-invested in the business (called retained earning), or it can be paid to the
shareholders as a dividend. Many corporations retain a portion of their earnings and
pay the remainder as a dividend.

All the business corporations are operated for profit. Less or more their objective is
profit earning. Traditionally the only one objective of firm used to be profit
maximization. But with past in time, the consumers became aware and consumers'
groups and various interest groups emerged against the profit maximization objective
of the firm exploiting the natural resources and consumers. Due to this various
objectives of the firms such as sales maximization, wealth maximization etc is in
practice now. Even firms have different objectives; they are not completely able to
ignore the objective of earning profit. As profit is the backbone of firm which
determines the position of the firm in the market and maximizes the wealth of the

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firm, manager should make a decision that how much portion of the profit to be shared
to shareholders and how much portion to be kept for further investment.

Though Nepal is surrounded by the two economic superpowers of the world, China
and India, it is still in the list of least developed countries. Majority of the population
lie below the poverty line. The agro-dominated economy is further worsened by
complex geographical situation. Various factors like landlocked situation, poor
resource mobilization, lack of infrastructure, lack of entrepreneurship, lack of
institutional commitment, erratic government policies, political instability etc. are
responsible for the slow pace of development in Nepal.

The globalization and liberalization process have surmounted a worldwide pressure on

planners and policy makers to design for the rapid growth. This requires a sufficient
and high amount of investment, which is possible through canalization of what the
people save.

Realizing the same, the government has given primary attention on the development of
the banking sector, so that it performs two major responsibilities:

 Generating income through the promotion of trade, commerce and industry.

 Trapping the public saving to raise the sufficient funds for investment.
Since FY 1987/88, a significant step towards financial liberalization was undertaken
by His Majesty's Government now Nepal Government with the view to expedite the
pace of economic development under the structural adjustment program. The
liberalization policy of His Majesty's Government of Nepal has encouraged the private
sector to invest in various fields, which support the nation's overall economic growth.
The liberalization policy has attracted not only country's investors but also motivated
the foreign investors to work in a partnership basis with Nepalese investors.

Bank, financial institutions is playing a vital role in the economic development of the
country. The function of banks are not only accepting deposits and granting loans but
also, including wide range of services to the different strata of society, to facilitate the
growth of trade, commerce, industry and agriculture of the national economy. In the
absence and insufficiency of banking and financial facilities, the growth of the
economic development becomes slow. However, bank is a resource for economic

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development, which maintains the self confidence of various segments of society and
advances credit to the people.

Commercial Bank Act, 2031 B.S., "A commercial bank is one which exchanges
money, deposits money, accepts deposits, grants loans and performs commercial
banking functions and which is not a bank meant for co-operations, agriculture,
industries or for such specific purpose"

The growing influence of liberal economic policies in early 80's resulted into a global
move for economic liberalization and globalization. This influence in Nepal, first of
all appeared in the form of Nepal's liberal policies in the banking sector. The
government of Nepal introduced financial sector reforms policy in 1980. This
encouraged the healthy competition in the financial sector as well as it allowed the
entry of foreign banks in the Nepalese market in the form of joint venture commercial
banks. In other words, His Majesty's Government of Nepal permitted to establish
private commercial banks with foreign investment in this sector.

The commercial banking industry has remarkably developed in a short span of time of
one decade. This development has helped to mobilize the internal resources as well as
the external funds of foreign investors for the economic development of the nation.

The advantage of joint venture and private banks in Nepal has many consequences
apart from performing the role of commercial banks. They introduced new philosophy
and modern banking practices in Nepal. The growth of joint venture banks increased
dramatically after the restoration of democracy when government adopted liberal and
market oriented policy. The establishment of joint ventures after restoration of
democracy in 1990 has been contributing to a gradual development of banking culture
i.e. issuing credit cards, debit cards, tele banking, 24 hours banking service, other
service etc. This has drawn a heavy attention from non-business or general public
towards commercial banks.

Dividend is one of the major reasons for which public are interested to invest money
on the shares of bank or other institution. It refers to the portion of earnings that is
distributed to the shareholders in return to their investment in the shares. Normally,
that business, which is running at profit, is capable to pay dividend. The amount which

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is distributed as dividend should be adequate to meet the normal expectations of share
holders. Dividend can be paid in cash, shares and securities or a composition of these.
There is a reciprocal relationship between retained earnings and cash dividend. So,
cash dividend payout reduces the total amount of internal financing.

In theory of finance, dividend decision plays a very crucial role. Dividend decision
however is still a crucial as well as controversial area of managerial finance. It is more
technical area of finance in the sense that it is complex on having numerous
implications for the firm. Dividend policy may affect the area such as financial
structure of the firm, flow of funds, stock prices, investor's satisfaction growth of the
firm etc. Like other major decisions of the firm i.e. investment and financing decision,
the dividend decision has major role in any organization.

The dividend payout reduces the amount of earnings retained in the firm and affect
total amount of internal financing. For expansion of every firm, there should be extra
financing. This financing can be made either through the external source or internal.
The external source includes the issue of shares, bonds, debentures etc. Whereas the
internal source is the earnings retained after the payment of dividend. Thus, the
amount of internal financing is highly dependent upon the dividend policy adopted by
the firm. For the existing firm, it is very necessary to analyze which source is more
profitable because the cost of external financing is relatively high as compared the
retained earning due to the extra cost required.

Retained earnings are used for making investment in favorable investment

opportunities, which in turn helps to increase the growth rate of the firm. The main
controversy between the shareholders and management is the rate of dividend because
shareholders want more dividend and management wants more amount to retain to the
company for the investment purpose. Dividend policy decision is the major financial
decision of the firm, which determines further capital structure and growth of the firm.

In context of Nepal, most of the public enterprises are operating in loss. In such
situation it is not possible to distribute dividend. Such enterprises mainly focus on
minimizing their loss. There are few companies who pay dividend. But after the
establishment of joint venture companies, there is a new trend of distributing dividend

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to shareholders that has brought new hopes for productive mobilization of funds.
Dividend distribution trend has not only attracted the investors but has also made the
management conscious about the policy regarding the payment of dividend.

1.2 Statement of the Problem

Dividend decision is still a fundamental as well as controversial area of managerial
finance. The effect of dividend policy on a corporation's market value (or market value
of share) is a subject of long standing argument. But still there is no single conclusive
result regarding the relationship between the dividend payment and market price of the
share.

Many empirical studies have been carried out in the developed capital market to
analyze the relationship between dividend and stock prices like Lintner (1956),
Modigliani and Miller (1961), Gordon (1962), Friend and Puckett (1964), Walter
(1966), Van Horne and McDonald (1971), Chawla and Shrinivasan (1987). However,
no conclusive relationship exists between the amount paid out as dividend and the
market price of share. There is still a controversy concerning the relationship between
dividend and market price of shares. From the past many year it has been tried to see
the relevant and practicable dividend policy in the firms all over the world.

Dividend is the most inspiring factor for the investment on shares of the company is
thus desirable from the stockholder's point of view. In one hand the payment of
dividend makes the investors happy. But in the other 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 prices.

Earnings are also treated as financing sources of the firms. The firm retains the
earning, its repercussion can be seen in many factors such as decreased leverage ratio,
expansion of activities and increase in profit in succeeding years. Whereas if firm pays
dividend, it may need to raise capital through capital market, which are depends on
ownership control. On condition the firm takes loans or raises debenture, it will affect
on risk characteristics of the firm. Therefore there are many dimensions to be
considered on dividend theories, policies and practices.
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The capital market is an important part of corporate development of a country. Even if
capital market is in the early stage of development in Nepal, Nepalese investors have
heavily made investment on newly established companies without having the
prospective analysis of those companies, especially in the financial sector. This trend
will remain to continue until the investors are satisfied by the decision made by the
management of these companies. Dividend is the most inspiring aspect for the
investment in the shares of various companies for an investor. In popular practice of
Nepal, when the firms earn big earnings they retain more and when they do not have
good figure of earnings, company announces high dividend to protect their image in
the capital market. Even if dividends affect the firm's value, unless management
knows exactly how they affect value, there is not much that they can do to increase the
shareholders' wealth. So it is necessary for the management to understand how the
dividend policy effects the market valuation of the firm or market price of the stock.

Thus, this study will seek to answer the following questions:

 What are the implications of dividend on market price of share ?

 What are the major factors that affect the dividend and valuation of the firms
stock ?
 What is the relationship between the factors affecting dividend and valuation
of the firms stock ?
1.3 Objectives of the Study

The major objective of the study is to find out the dividend policy and its impact on
market price of the share. The main objectives of the study can be listed as follows:

1. To determine the relationship between market price and other related financial
indicators such as earning per share, dividend per share, net worth per share
and dividend payout ratio.

2. To examine the dividend practices carried out by the sampled joint venture
commercial banks in Nepal.

3. To provide feedback to the policy makers and executives working in various

commercial banks chosen for study based on findings of analysis.

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For the management of any organization, examination of the relationship between
dividend and market price of share may become an important guideline in setting
suitable dividend policy. Major focus of this study is to trace the impact of dividend
policy adopted by the firm/company on the market price of the share as well as the
overall value of the firm. This study also provides relevant and pertinent literature for
future research on the area of dividend policy of managerial finance.

1.4 Significance of the Study

Nowadays people are attracted to invest in shares for the purpose of getting more
return as well as to maximize their wealth.So the dividend policy has become an
effective way to attract new investors, to keep present investors happy and to maintain
goodwill of the company. When a new company floats shares through capital market,
very big congregation gathers to apply for owner's certificate. It indicates people's
expectation on higher return of investment in shares.

While investing in shares, the investor forgoes opportunity income that he could have
earned. In capital market, the return can be earned in two ways:

(i) By means of dividend

(ii) By capital gains i.e. increase in share price.

As dividend is one of the crucial factors in every organization. The dividend is most
sensitive element in the area of investment in the common stock. If the market does
not receive its expected dosage, stock price will suffer. Dividend announcement also
help to solve symmetric information problem between management and shareholders.
Besides this, shareholders usually think that dividend is less risky than capital gain and
they use the announcement of changes in dividend payment in assessing the value of a
security.

In the Nepalese context, people are investing hit–or–miss in shares because due to the
lack of enough knowledge. Therefore, the important part is necessary to establish clear
conceptions about the return resulting from investing in the stocks for the investors.

It is believed that many persons and parties such as shareholders, management of

banks, financial institution, general public (depositors, prospective customers,

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investors etc.) and other policy making bodies which are concerned with banking
(mainly Nepal SBI Bank Limited, Nabil Bank Limited, Standard Charted Bank
Limited, Everest Bank Limited and Everest Bank Limited) business will be benefited
from this study. It is also believed that it will provide valuable inputs for future
research scholars.

1.5 Limitations of Study

This study has been carried out within certain limitations, which are as follows:

i. This study is based specially on secondary data like annual reports of the banks
under review, journals, unpublished as well as published thesis works, other
published articles and reports and related materials from various websites.

ii. The balance sheet, profit and loss account and accompanying notes have been
basically considered as the subject matters of the study and they are assumed to
be correct and true.

iii. The study covers a five-year period, i.e. from FY 2067/071 (2013/2017) only.

iv. The study covers only five commercial banks of Nepal, which are:

a. Nabil Bank Ltd. (Nepal Arab Bank Ltd.)

b. Standard Charted Bank Nepal Limited
c. Nepal Investment Bank Limited
d. Nepal SBI Bank Limited
e. Everest Bank Ltd

1.6 Organizations Under Study

1.6.1 Nepal Arab Bank Limited (NABIL Bank Limited)

Nepal Arab Bank Limited (NABIL Bank Limited) was incorporated in the year 1984
A.D. (2041 B.S.). It commenced its operation on 12 July 1984 A.D. (2041/3/29 B.S.)
as the first joint venture commercial bank in Nepal. It was listed in the Nepal Stock
Exchange in the year 1986 A.D. (2042/09/08 B.S.). Dubai Bank Ltd., Dubai (Later
acquired by Emirates Bank International Ltd., Dubai) was the first joint venture
partner to NABIL. Currently, NB (International) Ltd., Ireland is the foreign partner.

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NABIL Bank Limited had the official name Nepal Arab Bank Ltd. till 31 st December
2001. The equity composition of Nepal Nabil Bank Limited is as follows:

NB (International) Limited, Ireland - 50%

Nepal Industrial Development Corporation (NIDC) - 10%
RastriyaBeemaSansthan - 9.67%
Nepal Stock Exchange Limited - 0.33%
General Public - 30%

NABIL Bank is the pioneer in introducing many innovative banking services and
marketing concept in banking sector of Nepal. It operates its activities through 26
branches and 2 counters. It is the only bank having presence in the Tribhuvan
International Airport. Some of the services provided by NABIL Bank Limited are
accepting deposits, lending, documentary credit, guarantees, collections, credit cards,
tele-banking, safe deposit lockers, fund transfer, ATM etc.

1.6.2 Standard Charted Bank Nepal Limited

Standard Chartered Bank Nepal Limited, formerly known as Nepal Grindlays Bank
Limited was incorporated in the year 1985 and has been in operation since 1987. On
31 July 2000, Standard Chartered Bank concluded the acquisition of ANZ Grindlays
Bank form the Australia and New Zealand Banking Group Limited. With this
acquisition, 50% shares of Nepal Grindlays Bank Ltd. (NGBL) previously owned by
ANZ Grindlays are now owned by Standard Chartered Grindlays Bank Ltd. leading to
the name change of the Bank to Standard Chartered Bank Nepal Limited with
effective from July 16, 2001. The equity composition of Standard Chartered Bank
Nepal Ltd. is as follows:

Standard Chartered Grindlays Bank - 75%

General Public - 25%

The Bank focuses mainly on corporate, consumer and commercial banking, providing
services for international firms, as well as embassies, aid agencies, airlines, hotels and
government corporations.

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The banking services range includes full trade finance capabilities as well as working
capital and medium term loan facilities, remittances, deposit services, credit card and
ATM. For international firms, Standard Chartered Bank Nepal Limited specializes in
foreign trade, bonding, remittance services and foreign exchange.

1.6.3 Nepal Investment Bank Limited

Nepal Investment Bank Limited, previously Nepal Indosuez Bank Limited, was
established in 1986 as a joint venture between Nepalese and French partners. The
French partner holding 50% of the capital of NIBL) was Credit Agricole Indosuez, a
subsidiary of one of the largest banking group in the world.

With the decision of Credit Agricole Indosuez to divest, a group of companies

comprising of bankers, professionals, industrialists and businessman, has acquired on
April 2002 the 50% shareholding of Credit Agricole Indosuez in Nepal Indosuez Bank
Limited.

The name of the Bank has been changed to Nepal Investment Bank Limited upon
approval of bank's Annual General Meeting, Nepal Rastra Bank and Company
Registrar's office with the following shareholding structure.

A Group of Companies - 50%

RastriyaBanijya Bank - 15%
RastriyaBeemaSansthan - 15%
General Public - 20%

Nepal Investment Bank Limited offers a wide range of service. Some of them are trade
finance, deposits, fund transfer, remittances, export credit, bills purchase, loans and
advances, locker facilities, ATM with any branch banking, 365 days banking etc.

1.6.4 Nepal SBI Bank Limited.

Himalayan Bank Ltd. (HBL) is the first Nepal-Indo joint venture commercial bank in
the country. It is sponsored by three institutional promoters, namely, State Bank of
India, KarmachariSanchayaKosh (Employees Provident Fund) and Agricultural
Development Bank of Nepal. Nepal SBI Bank Limited became operational on the 8th
July 1993 A.D. (2050/03/23 B.S).

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The Bank was registered on 2050/1/16 (28 April 1993) in the Department of Industry,
HMG/N under the Company Act, 2021 and Commercial Bank Act, 2031. The formal
inauguration of Nepal SBI Bank Limited took place on 7th July 1993. It commenced
its operations on 2050/3/23 B.S. (8th July, 1993 A.D.). The equity composition of the
Bank is as follows:

State Bank of India - 50%

Employee Provident Fund - 15%
Agricultural Development Bank of Nepal - 5%
General Public - 30%

It has been providing services through its 10 Branches and 3 Extension Counters. The
services provided by Nepal SBI Bank Limited include deposits, remittances, various
types of loan facilities, letter of credit, bank guarantees, retail financing (house loans,
vehicle loans and education loans) etc. It has recently launched 365 days banking
services and ATM facility from its New Road branch.

1.6.5 Everest Bank Limited

Everest Bank Limited is a joint venture commercial bank with International Finance
Investment and Commerce Bank (IFIC) Limited of Bangladesh. It was established in
6th June 1993 A.D. (2050/02/23 B.S.) under Company Act, 2021. It is managed in
accordance with the Technical and Management Agreement signed with IFIC Bank
Ltd., Bangladesh. IFIC Bank is a leader in serving the demand of domestic and
international banking. The equity composition of NB Bank Ltd is as follows:

IFIC Bank, Bangladesh - 50%

Nepali Promoters - 20%
General Public - 30%

It has been providing services through 17 branches and 1 main office. NB Bank
Limited engages in all commercial banking activities, including foreign exchange,
tele-banking facilities, trade and industry finance, consumer banking, safe deposit
lockers, corporate banking with a wide network of agencies and correspondence
banking with other major financial institutions in the world.

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1.7 Chapter Plan

The study contains five chapters. The introduction, literature review, research
methodology, presentation and analysis of data, summary, conclusion and
recommendation are the major chapters included under this study.

 The first chapter, introduction, deals with general introduction, focus of the
study, statement of the problem, objectives of the study, importance/significance
of the study, organization under study and limitations and chapter plan of the
study.

 The second chapter, literature review deals with different literatures, which are
closely related to this study. It provides information about the various aspects of
the dividend. The various practices done regarding the dividend policy in Nepal
is also reviewed under this chapter.

 The third chapter, research methodology deals with the detail research methods
that are planned for conducting this study.

 The fourth chapter, presentation and analysis of data is concerned with the
application of defined research method on the collected data and information.
The generated results after the application of research method on data are
analyzed and interpreted in this chapter.

 The fifth chapter, summary, conclusion and recommendation part deals with the
summary and conclusion of the analysis. Brief conclusions from the analysis are
drawn and necessary recommendations are made through this chapter.

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 CHAPTER –II
REVIEW OF LITERATURE

This research aims to analyze the impact of dividend policy on market price of the
shares of joint venture commercial banks, which are Nabil Bank Limited, Standard
Chartered Bank Limited, Nepal Investment Bank Limited, Nepal SBI Bank Limited
and Everest Bank Limited. For this purpose, it needs to review related literatures in
this concerned area which will help researcher to get the clear cut ideas, opinions and
other concepts. What others have said? What others have done? and What others have
written? These all and other related questions are reviewed which has provided useful
inputs in this research work this chapter emphasizes about the literatures which were
concerned in this connections. Therefore, in this chapter conceptual frameworks given
by different authors and intellectuals of this area, book, journals research work and
previous thesis related to dividend, dividend policy and impact of dividend policy are
reviewed. Moreover, rules regarding to dividend policy are reviewed and an attempts
has been made to present them properly.
2.1 Conceptual Framework
Dividend refers to that portion of a firm's net earning, which are paid out to the
shareholders. Dividends are generally paid in the form of cash. So that the payment of
dividend reduces the cash balance of the company as well as reduces the amount of
retained earnings. In theory of finance, dividend decision plays a very vital role.
Dividend decision however is still a crucial as well as controversial area of managerial
finance. It is more technical area of finance in the sense that it is complex on having
numerous implications for the firm. Dividend policy may affect the area such as
financial structure of the firm, flow of funds, corporate liquidity, stock prices,
investor's satisfaction, growth of the firm etc. Like other major decisions of the firm
i.e. investment and financing decision, the dividend decision has major role in all
business organizations.
Dividend policy is the policy of any firm/organization/company regarding the division
of its profit between shareholders as dividend and retention of the profit for making

13
investments. The dividend policy includes all aspects related to the payment of
dividend. There is inverse relationship between cash dividend and retained earnings.
In other words, if the company pays more dividends to its shareholders, there will be
less retained earnings for making investments and vice-versa. "Dividend Policy
determines the division of earnings between payments to stockholders and
reinvestment in the firm. Retained earnings are one of the most significant sources of
funds for financing corporate growth, but dividends constitute the cash flows that
accrue to stockholders." Western, J Fred & Copland (1990) Thus, the dividend payout
reduces the amount of retained earnings in the firm and affect total amount of internal
financing. The decision depends upon the objective of the management for wealth
maximization.
Dividend decision is one of three major decision of managerial finance. The firm has
to choose between distributing profit as dividend to the shareholders or reinvesting the
profit into the business for more profitable opportunities. It is better to pay the
dividend, if the payment will lead to the wealth maximization. If not it is better to
retain them for financial investment. Thus the relationship between dividend and value
of the firm is considered as the criterion for decision-making.
Shareholders of a company always aim to maximize their wealth. The shareholders
wealth includes not only the market price of the stock but also the current dividend the
company pays to them. But the dividend payout reduces the total amount of internal
financing. Thus the dividend policy should be concerned with the well being of the
shareholders, which can be partially measured by dividend received but more
accurately measured in terms of the market value of the stock.
Most of the shareholders want to maximize their wealth in two forms i.e. capital gain
and cash dividend. Capital gain is the profit resulting from sale of the common stock
where as dividend is the share in profit of the company. The shareholders, in one hand
expect an increase in market price of the share and in the other hand they also expect
distribution of firm's earning in the form of dividend. From the firms having stable
image in the market, the investors expect regular dividend. Thus this priority takes
over the desire to retain earnings for financial expansion and growth. Thus,
shareholders expectation can be fulfilled either through capital gains or dividends.

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It is thus very important to maintain balance between the shareholders' interest and
corporate growth resulting from internal financing i.e. amount retained. "Financial
Management is therefore concerned with the activities of the corporation that affect
the well being of stockholders. That well being can be partially measured by the
dividend received, but more accurate measure is the market value of stock." Dean
William H.(1973)
Thus dividend decision is one of the central and major decision area related to the
policies seeking to maximize the value of firm's common stock as well as the wealth
of the shareholders.
2.1.1 Forms of Dividend
Depending upon the objectives and policies, they implement, the firm can give various
type of dividend to the shareholders. Before adopting any dividend, the firm must
ensure the smooth growth of the firm as well as satisfy the expectation of the
shareholders. There should be consistency in dividend policy and financial plans,
shareholders preference and attitude of the directors. The corporations in Nepal are in
the early stage of development due to which they need to pay extensive concentration
in the dividend. The empirical observation in case of public limited companies in
Nepal shows that only few corporations are paying dividend to the government due to
suffering from regular losses and not having risk of ownership transfer.
BhattaraiBishnuHari (1996) Some of the major forms of dividends, which are adopted
by corporations:
a. Cash Dividend
The portion of earning paid in form of cash to the investors in proportion to
their share of the company is known as cash dividend. After the payment of
dividend to the shareholders both the total assets and net worth of the company
decreases by the amount equal to the cash dividend. For the payment of
dividend, company should sustain adequate balance of cash. In case of
insufficiency in cash balance for the payment of dividend, funds to be
borrowed for this purpose are difficult. Thus, a company should regularly
perform cash planning for maintaining a stable dividend policy. In context of
Nepal, cash dividend is the most popular form of dividend and is mostly

15
 adopted by many companies/firms/financial institutions. However it can be
said that the volume of cash dividend depends on the earning of the
organization, attitude of management, situation of the market, cost of external
financing etc.

b. Stock Dividends/Bonus Share

Stock dividend refers to the payment of additional stock to the shareholders.
"A stock dividend is paid in additional shares of the stock instead of in cash
and simply involves a book-keeping transfer from retained earning to the
capital stock account." Western J Fred & Copland (1990) A stock dividend
represents a distribution of shares in addition to the cash dividend to the
existing shareholders. This has the effect of increasing the number of
outstanding shares of the company. The declarations of the bonus shares will
increase to paid up shares capital and reduce the reserve and surplus of the
company. The total net worth is not affected by the bonus issue. In fact, if
represents nothing more than re-capitalization of the owner's equity portion,
i.e. the reserve and surplus. It is simply and accounting transfer from retained
earnings to capital stock.

c. Scrip Divided
A Scrip dividend is issued when company has been suffering from the cash
problem and does not permit the cash dividend, but has earned profit. A
dividend paid in promissory noted is called scrip divided. Scrip is a form of
promissory notes promising to pay the holder at specified later date under this
form of dividend, company issues and distributes transferable promissory notes
to shareholders, which may be interest bearing or non-interest bearing. The use
of scrip dividend is desirable only when corporations have really earned profit
and have only to wait for the conversion of other current assets into cash.
Therefore, in order to overcome the temporary shortage of cash, sometimes
company uses scrip dividends.

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d. Property Dividend
It is also known by the name of liquidating dividends. It involves a payment of
assets/property in any form other than cash. Such form of dividend may be
followed whenever there are assets that are no longer necessary in the
operation of the business or in extra ordinary circumstances. Company's own
products and the securities of subsidiaries are the example that have been paid
as property dividend.

e. Optional Dividend
The optional dividend is, in fact, not a kind of dividend but simply a choice of
dividend given to the shareholders to accept either cash or stock dividend. But
the shareholders consider the comparative value of stock dividend with the
amount of optional cash. "If the two are very nearly the same, as it often the
case, the cash option may be a convenience to selling either whole or fraction
of shares he does not wish to keep. If the cash dividend is subject to income
taxes over and above the limit he prefers to have stock dividend.
f. Bond Dividend
This type of dividend is distributed to the shareholders in the form of bond. It
helps to postpone the payment of cash. In other words, company declares
dividend in the form of its own bond with a view to avoid cash outflows. They
are issued rarely. They are long-term enough to fall beyond the current liability
group. The stockholders become secured creditors if the bond carries lien on
assets.
But none of these types except cash and stock dividend have been practiced in
Nepalese corporations although they have ample scope for application. So for
in this study, the term dividend generally refers to cash dividend.

2.1.2 Factors Influencing Dividend Policy

While establishing a dividend policy in any organization, various factors should be
taken into consideration. Dividend is that decision, which is influenced by many
internal as well as external factors. Management has to consider both economic and
non-economic factors before establishing any dividend policy. In practice, the

17
financial executives consider the following factors when approaching a dividend
decision.
a. Stability of Earnings
A firm that has relatively stable earnings is often able to anticipate
approximately what its future earnings will be. Such a firm is therefore more
likely to pay out a higher percentage of its earning than a firm with fluctuating
earnings. The unstable firm is not certain that in succeeding years the
anticipated earnings will be realized, so it is likely to retain a higher proportion
of current earnings. A lower dividend will be easier to sustain if earnings fall
off in the future.
b. Profit Rate
The expected rate of returns on assets determines the relative attractiveness of
paying out earnings in form of dividend to the shareholders who will use them
elsewhere or using them in the present venture.
c. Past Dividends
A firm with record of past dividend payments strive to maintain the same in
the future. Dividends are habit forming. If the market does not receive its
expected dosage, the stock price will suffer. The majority of firms surveyed
indicated they would maintain their current dividend payments even if they
were operating at a net loss for an interim period. Furthermore, Baker, Farrelly
and Edelman (1985) find that managers strongly agree with the statement that
a firm should attempt to maintain an persistent record of dividend payments.
d. Liquidity Position
One of the major factors to be considered in making the dividend decisions is
the availability of cash or liquidity position of a company. As dividend
symbolize a cash outflow, the greater the cash position and overall liquidity of
a company, the greater its ability to pay a dividend regularly. Even a company
that is growing and profitable may not be liquid, for its funds may go into
investment opportunities, fixed assets and permanent current assets. Thus, even
if a firm has a record of earning, it may not be able to pay cash dividends
because of its liquidity position. In deed, a growing firm even a very profitable

18
 one typically has a pressing need for funds. In such a situation the firm may
elect not to pay cash dividend.
e. Need to Repay Debt
When a firm has issued debt to finance expansion or to substitute for other
form of financing, it is faced with two alternatives. It can refund the debt at
maturity by replacing it with another form of security or it can make provision
of paying off debt. If the decision is to retire the debt, this will generally
require the retention of earning. In such case also the dividend decision will be
effected.
f. Restrictions in Debt Contracts
Debt contracts, especially when long-term debt is involved, often confine a
firm's ability to pay cash dividends. In other words the protective covenants in
bond indenture or loan agreement often include a restriction on payment of
dividends. The restriction is employed by the lenders to conserve the
company's ability to service debt. Generally it is articulated as maximum
percentage of earnings. Similarly preferred stock agreements generally state
that no cash dividends can be paid on the common stock until all accrued
preferred dividends have been paid. These types of limitations persuade the
dividend policy of the firm.

g. Tax of Shareholders
The tax position of the corporation's owners greatly influences the desire for
dividends. For example, a corporation closely held by a few tax payers in high
income tax brackets is likely to pay a relatively low dividend. The owners are
interested in taking their income in the form of capital gains rather than as
dividends which are subject to higher personal income tax rates. However, the
stockholders of a large widely held corporation may be interested in a high
dividend payout

19
h. Rate of Asset Expansion
There is need of more financing if a firm is growing rapidly. The greater the
future need of funds, the more likely the firm is to retain it's earning rather than
pay them out in form of dividends. But if earnings are paid out as dividend and
are subjected to high personal income tax rates only portion of them will be
available for reinvestment.

i. Access to the Capital Market

A large and well-established firm with a record of profitability and stability of
earning has easy access to capital markets and other forms of external
financing. In contrast a small and new firm is riskier for potential investors. Its
ability to raise equity or debt funds from capital market is restricted. So it must
retain more earning to finance its operation. Thus a well-established firm have
higher payout ratio than that of a new or small firm.

j. Legal Restrictions
Legal rules constrain dividend payment on certain conditions as follows:
 Capital impairment rule states that dividend should not be paid out of
paid-up capital, which causes adverse effect on security of creditors and
preference shareholders.
 The firm should not pay cash dividend greater than the current net
profit plus accumulated balance of retained earning. Accumulated loss
should be recouped out of current earnings. This rule is violated by
some of Nepalese companies due to management intention and
government intervention.
 Insolvent firms i.e. liabilities exceeding assets or unable to pay bills are
prohibited for paying cash dividend to protect creditors of the firm.
 If the firm has retained earning to provide opportunity to shareholders
for capital gain and thereby evade tax liability of income, under such
condition the firm may be forced to pay dividends.

20
 k. Control
With a liberal dividend policy, there may be need of raising fresh capital in
future. If the current shareholders can not or do not subscribe the new shares,
new stockholders can dilute their controlling interest in the firm. Thus
shareholders who are very sensitive to a potential loss of control prefer a low
dividend payout policy.

l. Inflation
Inflation also play decisive role in dividend decision. In price rise, the
company may have to retain high percentage of earning because of inadequate
funds generated from depreciation to replace equipments

2.1.3 Developing Dividend Policies

Even though most firms seem to have a policy of paying stable amount of dividend or
a stable dividend payout ratio, this is not only the policy. Stability or regularity of
dividends is considered as a desirable policy by the management of most companies.
Shareholders also generally prefer stable dividends because all other things beings of
the same, stable dividends may have a positive impact on the market price of the
share. There are three major types of dividend payout schemes:
a. Constant Dividend Per Share
According to this form of stable dividend policy, a company follows a policy of
paying a certain fixed amount per share as dividend. The fixed dividend amount would
be paid year after year, irrespective of the fluctuation in the earnings. In other words,
fluctuations in earnings would not affect the dividend payment. In fact, when a
company follows such a dividend policy it will pay dividends to the shareholders even
when it suffers losses. It should be clearly noted that this policy does not imply that
the dividend per share or dividend rate will never be increase. The dividend per share
are increased over the years when the company reaches new levels of earnings and
expects to maintain it. Of course, if the increase is expected to be temporary, the
annual dividend per share is not changed and remains at the existing level.
It is easy to follow this policy when earnings are stable. If the earnings pattern of a
company shows wide fluctuations, it is difficult to maintain such a policy. Investors

21
who have dividends as the only source of their income prefer the constant dividend
policy.
b.Constant Payout Ratio
Constant/target payout ratio is another form of stable dividend policy followed by
some companies. The term payout ratio refers to the ratio of dividend to earnings or
the percentage share of earnings used to pay dividend. With constant/target payout
ratio, a firm pays a constant percentage of net earnings as dividend to the shareholders.
In other words, a stable dividend payout ratio implies that the percentage of earnings
paid out each year fixed. Thus, amount of dividend will fluctuate in direct proportion
to earnings and are likely to be highly volatile in the wake of wide fluctuations in the
earrings of the company.
This policy is related to a company's ability to pay dividends. If the company incurs
losses, no dividend shall be paid regardless of the desires of shareholders. Internal
financing with retained earnings is automatic when this policy is followed. At any
given payout ratio the amount of dividends and the additions to retained earnings
increase with increased earnings and decrease with decreased earnings. This policy
simplifies the dividend decision, and has the advantage of protecting a company
against over and under payment of dividend. It ensures that dividends are paid when
profits are earned, and avoided when it incurs losses.
c. Stable Rupee Dividend Plus Extra Dividend (or Low Regular Dividend Plus
Extras)
A policy of paying a low regular dividend plus a yearend extra in good years is a
compromise between the previous two policies. Under this policy, a firm usually pays
fixed dividend to the shareholders and in years of marked prosperity additional or
extra dividend is paid over and above the regular dividend. As soon as normal
conditions return, the firm cuts the extra dividend and pays the normal dividend per
share.
It gives the firm flexibility, but it leaves investors somewhat uncertain about what
their dividend income will be. If a firm's earnings and cash flows are quite volatile,
however, this policy may well be the best choice.

22
2.1.4 Legal Provisions Regarding Dividend Practices in Nepal
There are no clear-cut legal provisions regarding dividend policy in Nepal.
Commercial Bank Act, 2031 has made some provision for distributing dividend.
According to this section, before providing the whole expenses by the bank for
preliminary expenses, loss incurred in last year, capital reserve, risk beard fund and
reserve fund the bank shall not be declare and distribute the dividend to shareholders.
Similarly, Company Act-1997 has made some legal provisions regarding dividend
payment. These provisions are as under:
 Section 2 (M) states that bonus shares (stock dividends) means shares issued in
the form of additional shares to shareholders by capitalizing the surplus from
the profits or the reserve fund of a company. The term also denotes an increase
in the paid up values of the shares after capitalizing surplus or reserve funds.
 Section 47 has prohibited company from purchasing its own shares. This
section states that no company shall purchase its own shares or supply loans
against the security of its own shares.
 Section 137 Bonus Shares and Sub Section (1) states that the company must
inform the Office before issuing bonus shares, under Sub Section (1), this may
be done only according to a special resolution passed by the general meeting.
 Section 140: Dividends and Sub Sections of this Section are as follows:
Sub Section (1): Except in the following circumstances, dividends shall be
distributed among the shareholders within 45 days from the date of decision to
distribute them,
- In case any law forbids the distribution of dividends.
- In case the right to dividend is disputed.
- In case dividends can not be distributed within the time-limit
mentioned above owing to circumstances beyond anyone's control and
without any fault on the part of the company.
Sub Section (2): In case dividends are not distributed within the time-limit
mentioned in Sub Section (1), this shall be done by adding interest at the
prescribed rate.

23
 Sub Section (3): Only the person whose name stands registered in the register
of existing shareholder at the time of declaring the dividend shall be entitled to
it.
Similarly, following are the major HMG's decision regarding dividend payment by the
government corporation dated June 14, 1998.
i) Dividend should be paid in profitable year. Even though there are cumulative
losses, dividend is to be paid if cash flow is sufficient to distribute dividend.
ii) In case of unaudited accounts, interim dividend should be paid on the basis
of provisional financial statement.
iii) Decision regarding distribution of annual net profit shall not be made without
prior acceptance of Ministry of Finance. All incentives, except those to be
paid by law, shall not be distributed unless the amount of dividend is not paid
to government.
iv) Concerned BOD and top management will be held responsible for
implementation of these dividend policies.
v) Ministry of Finance will make necessary arrangements regarding fixation of
dividend percentage coordinating all concerned corporation and ministries.
2.2 Review of Major International Studies
Various studies have been made concerning the dividends and stock prices. Some of
the major international studies on the relating to dividends and shares are stated as
below. This study draws heavily from these studies to carry it out.
2.2.1 Review of Journals
Gordon (1962) has developed another popular and important model relating to the
stock valuation using the dividend capitalization approach. Gordon concludes that
dividend policy does affect the value of shares even when the return on investment
and required rate of return are equal. He explains that investors are not indifferent
between current dividend and retention of earnings with the prospect of future
dividends, capital gain and both. The conclusion of this study is that investors have a
strong preference for present dividends to future capital gains under the condition of
uncertainty. It is assumed that current dividend is less risky than the expected capital
gain. His argument stresses that an increase in dividend payout ratio leads to increase

24
in the stock price for the reason that investors consider the dividend yield (D 1/Po) is
less risky than the expected capital gain.
Gordon's model is also described as "a bird in hand argument". It supports the
arguments, which is popularly known as a bird in hand is worth two in the bush. What
is available at present is preferable than what may be available in the future. That is to
say current dividends are considered certain and risk-less. So it is preferred by rational
investors as compared to deferred dividend in future. The future is uncertain. The
investors would naturally like to avoid uncertainty. So the current dividends are given
more weight than expected future dividend by the investors. So the value per share
increases if dividend payout ratio increases. This means there exist positive
relationship between the amount of dividend and stock prices.
Basic assumptions of this model are as follows.
i. The firm uses equity capital only.
ii. Internal rate of return (r) and cost of capital (k e) are constant.
iii. The firm and its stream of earnings are perpetual.
iv. There is no taxes on corporate income.
v. The retention ratio (b) once decided upon is constant. Thus the growth rate, (g
= br) is constant forever.
vi. 'Ke' must be greater than g (br) to get meaningful value.
vii. The source of financing for new investment is only retained earning. No
external financing is available.
Gordon's model is also known as GROWTH MODEL. The formula for finding out
the market value per share, proposed by Gordon is given below.

P= E (1 - b) = E (1 - b)
Ke - br Ke - g

Where,
P= Price of share/market value per share
E= Earning per share
b= Retention ratio/percentage of retained earning

25
 1-b = Dividend payout ratio (i.e., percentage of earning distributed as
dividend)
Ke = Capitalization rate/cost of capital
br = g or growth rate in r, (i.e., rate of return on investment of an
all equity firm)
1st Case: Growth Firms (r > k)
In the case of growth firm, the value of a share will increase as the retention ratio (b)
increases and the value of a share will decrease as the retention ratio (b) decreases. i.e.
high dividend corresponding to earnings leads to decrease in share prices and low
dividend corresponding to earning leads to increase in share prices. So, dividends and
stock prices are negatively correlated in growth firm i.e., r > k firm.

2nd Case: Normal Firms (r = k)

Dividend payout ratio does not affect the value of share in normal firm. In other
words, share value remains constant regardless of changes in dividend policies. It
means dividend and stock price are free from each other in normal firm i.e., r = k
firm.

3rd Case: Decline Firms (r<k)

In case of declining firms, share price tends to enhance with increase in payout ratio
(1-b), or decrease in retention ratio (b). So, dividends and stock prices are positively
correlated with each other in decline firm i.e., r < k firm.

Modigliani and Miller (1961) for the first time in the history of finance, advocated
that dividend policy does not affect the value of the firm, i.e., dividend policy has no
effect on the share price of the firm. They argued that the value of the firm depends on
the firm's earnings which depend on it's investment policy. Therefore, as per MM
Theory, a firm's value is independent of dividend policy.
According to MM, dividend policy of a firm is irrelevant, as it does not affect the
wealth of the shareholders. They argue that the value of the firm depends on the
earning power of the firm's assets or its investment policy.

26
In general, the argument supporting the irrelevance of dividend valuation is that
dividend policy of the firm is a part of its financing decisions. As a part of the
financing decision of the firm, the dividend policy of the firm is a residual decision
and dividends are passive residual.

The MM approach of irrelevance dividend is based on the following critical

assumptions:

i. The firms operate in perfect capital market where all investors are rational.
Information is freely available to all. Securities are infinitely divisible and no
investor is large enough to influence the market price of securities.
ii. There are no flotation costs. The securities can be purchased and sold without
payment of any commission or brokerage etc.
iii. Taxes do not exist.
iv. The firm has a definite (fixed) investment policy, which is not subject to
change.
v. Risk of uncertainty does not exist. Investors are also able to forecast future
prices and dividends with certainty, and one discount rate is appropriate for all
securities and all time periods. Thus r = k = ktfor all time.
M-M provides the proof in support of their argument in the following manner.

Step-One

The market price of a share of the firm in the beginning the period is equal to the
present value of dividends paid at the end of the period plus the market price of the
share at the end of the period.

Symbolically,
D1 +
Where, (1)
1
P1+
Ke
P0 = Current market price of a share (market price at the beginning or at the
zero period.)

Ke = The cost of equity capital (Assumed constant)

27
 D1 = The dividend per share to be received at the end of the period one.

P1 = The market price of the share at the end of the period one.

Step-Two

Multiply both sides of equation (1) by the number of shares outstanding (n) to
obtain the total value of the firm if no new financing exists.

np0 = n(D1 + P1)

(2)
1 + Ke
Where,

n = no. of outstanding shares at zero period.

Step-Three

If the firm issues (sells) number of new shares (m) to finance the new investment
needs of the fund at a price of P1, the value of the firm at time zero will be:

nP0 = nD1 + P1(n + m) - mP1

(3)
1 + Ke
Where,

n = no. of shares at the beginning (no. of outstanding shares at zero period.)

m = no. of equity shares issued at the end of the period.

Step-Four

If the investment proposals of a firm in a given period of time can be financed

either of retained earning or the issuance of new shares or both.Thuus amount of
new issued will be,

mP1 = I – (E – nD1)

Or, mp1 = I – E + nD1 (4)

Where,

I = Investment needs

E = Earning available.

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Step-Five

By substituting the value of mp1 from equation (4) to equation (3), we get,
nD1 + P1(n + m) – I + E - nD1
nP0 =
1 + Ke

nD1 + nP1+ mP1 – I + E - nD1

or,
1 + Ke
nP0 = or,

nP0 =P1(n + m) – I + E (5)

1 + Ke

Step-Six

Conclusions:

Since dividend does not appear directly in expression and E, I, (n+m)p 1 and ke are
assumed to be independent of dividend.

In other words, MM conclude that dividend policy is irrelevant and dividend

policy has no effect in the value of the firm. A firm that pays dividends will have
to raise funds externally to finance its investment plans. MM hold that when the
firm pays dividends, external financing offsets its advantage.

It does not seem so relevant to apply MM approach in Nepalese Context because

when we apply this approach, the assumptions supposed by MM are significantly
deviated. In Nepal, we are unable to find the rational investors as well as perfect
capital market, which are considered by MM. It does not seem so sound to neglect
the flotation cost, transaction cost and tax effect on capital gain as neglected by
MM. Arbitrage arguments as explained by MM applies only when there are very
sensitive investors and which are lacking in Nepal. A conscious investor always
finds different between dividend and retained earning. Thus, MM proposition is
not relevant in the case of Nepal.

29
2.2.2 Review of Articles
The review of studies regarding dividend policy and shares can be broadly classified
into two categories:
Very few articles relating directly or indirectly with dividend and stock price
are published in Nepal. Some of them, which are significant in this study, are
reviewed in this section.

Pradhan (1993) has conducted a study on "Small Market Behavior in A Small

Capital Market: A case of Nepal”. It is pertinent to put forth here because he has
analyzed various ratios related to dividend and market price of shares. The study was
based on the pooled – cross sectional data of 17 enterprises covering the year from
1986 to 1990.

The objectives of this study were as follows:

i. To assess the stock market behavior in Nepal.

ii. To examine the relationship of market equity, market value to book value,
price earning, and dividends with liquidity, profitability, leverage, assets
turnover, and interest coverage.
The following model was employed.

V = b0 + b1 LIQ + b2 LEV + b3 EARN + b4 TURN + b5 COV + Ui ……

The dependent variables, V chosen for the study has been are specified as under:

- Market equity, number of shares multiplied by market price of shares (ME).

- Market value of equity to its book value (MV/BV)
- Price – earning ratio (PE)
- Dividend per share to market price per share (DPS/MPS)
- Dividend per share to earning per share (DPS/EPS)
The independent variables are specified as:

LIQ = Current Ratio (CR) or Quick/Acid Test Ratio (QR)

LEV = Long-Term Debt to Total Assets (LTD/TA) or Long-Term Debt to
Total Capitalization (LTD/TC). Total Capitalization is specified

30
 as Long-Term Debt plus Net Worth.
EARN = Return on Assets, i.e. Earnings Before Tax to Total Assets (ROA)
or Return on Net Worth, i.e. Earnings Before Tax to Net Worth
(RONW).
COV = Interest Coverage Ratio, i.e. Earnings Before Tax to Interest.
TURN = Fixed Assets Turnover, i.e. Sales to Average Fixed Assets (S/FA),
or Total Assets Turnover, i.e. Sales to Average Total Assets
(S/TA)
U = Error Term

Some findings of his study, among others, were as follows:

i. Stocks with larger ratio of dividend per share to market price per share have
higher liquidity. Liquidity position of stocks paying lower dividends is also
more inconsistent as compared to stocks paying higher dividends.
ii. Stocks with larger ratio of dividend per share to market price per share have
lower leverage ratios. So, leverage ratios of stocks paying smaller dividends
were also more variable as compared to stocks paying higher dividends.
iii. Stocks with larger ratio of dividend per share to market price per share also
have higher earnings. But these earning ratios of stocks paying larger
dividends were also more variable as compared to stocks paying smaller
dividends.
iv. Positive relationship is observed between the ratio of dividend per share to
market price per share and turnover ratios. Stocks with larger ratio of dividend
per share to market price per share also have higher turnover ratios. Turnover
ratios of stocks paying larger dividends are also more variable than that of
stocks paying smaller dividends.
v. There is also a positive relationship between the ratio of dividend per share to
market price per share and interest coverage. Stocks with higher ratio of
dividend per share to market price per share also have higher interest coverage.
Interest coverage of stocks paying larger dividends were also more variable as
compared to stocks paying smaller dividends.

31
 vi. So, in conclusion, it indicates positive relationship of dividend per share to
market price per share with liquidity, profitability, assets turnover and interest
coverage; and negative relationship with leverage.

Shresthahas written an article about "Public Enterprises: Have They Dividend

Paying Ability ?", which was published in the book 'PRASHASAN' (30th Issue)
in March 1981. It gives short glimpse of the dividend performance of some public
enterprises of that time in Nepal. Dr. Shrestha has focused the following issues in
the article.

HMG wants two things from the public enterprises:

(i) They should be in a position to pay minimum dividend,

(ii) Public enterprises should be self-supporting in financial matters in future

years to come.

But these both objectives are not achieved by public enterprises.

1. One reason for this inefficiency is caused by excessive governmental interference

over daily affairs even though there is provision of government interference only
for policy matters. On the other hand, high-ranking officials of HMG appointed as
directors of board do nothing but simply show their bureaucratic personalities,
Bureaucracy has been the enemy of efficiency and thus led corporation to face
losses. Losing corporations are, therefore, not in a position of paying dividends to
government.
2. Another reason of this is the lack of self-criticism and self-consciousness. Esman
Milton J (1967) has pointed out that lack of favorable leadership is one of the
biggest constraints to institution building. Moreover corporate leadership comes,
as managers are not ready to have self-criticisms. In fact, all so called managers of
corporations have not been able to identify themselves regarding what they can
contribute as managers of corporations. So HMG must be in a position to develop
a financial target on corporate investment by imposing financial obligation on
corporations.

32
3. The article points out the irony of government biasness that government has not
allowed banks to adopt an independent dividend policy and HMG is found to have
pressurized on dividend payment in case of Nepal Bank Limited regardless of
profit. But, it has allowed RastriyaBanijya Bank to be relieved from dividend
obligation despite considerable profit.
4. The improvement suggested by authors are:
i. Adopt a criteria-guided policy to drain resources from corporations through the
medium of dividend payment.
ii. Realization by managers about cost of equity capital and dividend obligation.
If HMG wants to tap resources through dividend, the following criteria should be
followed.

i. Proper evaluation of public enterprises interns of capability of paying dividend

through corporation coordination committee.
ii. Imposition of fixed rate of dividend by government on financially sound public
enterprises.
iii. Circulating the information about minimum rate of dividend to all public
enterprises.
iv. Specifying performance targets in terms of profit, priorities on timings and
plans and development of strategic plans that bridges the gap between
aspiration and reality.
v. Identification of corporation objectives in Corporations Act, Company Act or
special charters so as to clarify public enterprise managers regarding their
financial obligation to pay dividend to HMG.

Poudel has conducted a study on "Investing in Shares of Commercial Bank in

Nepal: An assessment of Return and Risk elements", which was published in the
Economic Review: Occasional Paper in April 2002. The study was based on
secondary sources of 8 main joint venture commercial banks of Nepal covering the
sample period commenced on Mid-July 1996 to Mid-July 2001.
The objective of this study were as follows :
i. To determine whether the shares of commercial bank are correctly priced.

33
 ii. To exploring the future price behaviour of the individual share in the
market.
iii. To determine whether the shares of commercial bank in Nepal are
overpriced or under priced.
Some major points of his study, among others, were as follows :
i. An efficient market is one where shares are always correctly priced. In an
efficient capital market, current market prices fully reflect available
information. Therefore, if the market is efficient, it uses all information
available for setting a price.
ii. The concept of value is at the heart of financial management. The value of
any tradable item is whatever the bidder is prepared to pay. Several
analytical techniques are available to assists the financial manager for
valuing common stock. The investor expects regular earnings in the form
dividends and capital gains from the upward movements of the stock price.
Therefore, the valuation model should account for all these factors.
iii. The expected rate of return is the expected after-tax increase in the value of
the initial investment over the holding period. The overall rate of return can
be decomposed into capital appreciation and dividend components. Capital
appreciation is the difference between investor's end of the period and
beginning of the period.
iv. Investors are risk-averter and they select the securities that maximize
expected rate of return for any given level of risk or minimize risk for any
given level of expected returns. Chenny and Moses define risk as the
variability of possible returns around the expected return of an investment.
For some investment, this variability can be quite small. Similarly, Weston
and Brigham define risk as the chance that some unfavorable event will
occur.
v. The examined shares realized rates of return are not equal to the calculated
required rates of return, none of the share prices are in the equilibrium. The
share with higher realized return than the required return areunder

34
 pricedand the prices of shares will increase in the market that is striving
towards the equilibrium.
vi) Very few stocks in the market may have negative beta coefficient
indicating that their returns rise whenever returns on most stocks fall and
vice versa.
In this study some remarks is conducted, they were as follows :
i. The share of commercial banks in Nepal are heavily traded in the stock
market and therefore, these shares play a vital role in the determination
stock exchange indicators.
ii. All the share produced higher rates of return then the return on market
portfolio. However, the risk return characteristics do not seem to be the
same for all the shares reviewed.
iii. The share with larger standard deviation seem to be able to produce higher
rates of return. The portion of unsystematic risk is very high with the
shares having negative beta coefficient.
iv. The market price of an over priced (under priced) share will fall (rise) in
order to increase the expected return such that the expected return equals
the required return.

2.2.3 Review of Previous Thesis

In last few years, prior to this thesis, some students of M.B.A. and M.B.S. programme
have conducted research about the dividend and its relation with stock prices in
various sectors. Some of them, which are supposed to be relevant for this study have
been reviewed and presented in this section.

Sharpa (2002) has conducted a research on 'Corporate Information Disclosure and

its Effect on Share Price.'
The primary objective of his study was to obtain an insight on corporate information
disclosure with special reference to Nepalese stock market and its listed companies.
To attain the mentioned objective, the following specific objectives were set.
1. To highlight the corporate disclosure practice in Nepal.

35
2. To identify the extent of disclosure of each of the item of information and to
develop the information disclosure index.
3. To check the quality of corporate disclosure of Nepalese listed companies
measured by company characteristics namely asset size, number of shares
outstanding and earning margin.
4. To see the relationship between corporate information disclosure and stock price.
His research study began with the construction of disclosure index which he collected
59 informational items, classified according to their importance and calculated mean
value after the collection of primary data. Thereafter, he selected 33 listed companies,
used their annual reports and calculated disclosure scores, which was followed by the
use of various statistical tools like regression, correlations etc. to attain the mentioned
objective.
From the detailed analysis, he found that most of companies do not disclose adequate
and qualitative information on their annual reports, and most of disclosed information
consisted of only financial information that is statutorily required. Furthermore, he
found positive relationship between disclosure scores and variables like earning
margin assets size etc. The important finding of his research is that there is positive
relationship between market price of share and disclosure score. In other words, the
company having greater disclosure score had the higher prices of stock.
Rajbhandari(1999) has conducted a research on "Dividend Policy: A comparative
Study between Banks and Insurance Companies." The main objective of her
research was to find out the appropriate policies and practices in Nepal. Following
specific objectives were set to attain the general objective.
1. To examine the relationship between dividend and market price of the stock.
2. To analyze the relation between dividend policy and market price of the stock.
3. To identify the appropriate dividend policy followed by the banks and insurance
companies.
She selected three commercial banks and insurance companies as sample for her
research study. Thereafter, she accomplished her research analysis with an aid of
statistical tools like multiple regression analysis, correlation etc. After the detailed
analysis, she came to conclude that the relationship between market price per share

36
and last year's dividend was positive for three sampled companies, while it was
negative for the rest three companies. Similarly, her research result showed that the
relationship between earning per share and market price per share was not consistent
for all the sampled companies. This is because of the positive relationships found for
some companies and negative for others. (Rajbhandari, 2001:3-80)
Poudel(2001) in his study on "Share Price Movement of Joint Venture
Commercial Banks in Nepal"on April 2001 concluded that the market value per
share doesn't accommodate all the available historical information. He further stated
that having good track records of the financial position market penetrations and
continuous declaration of dividends, which may not be applicable to other, types of
non-banking firms, encouraged the potential investor to buy the shares of joint venture
commercial banks. Therefore the shares of joint venture commercial banks emerge as
the blue chips in the Nepalese stock market. His calculation of beta coefficient, which
measures the risky-ness of individual security in relative terms, suggests that none of
the shares of eighty banks, he studies, were risky.
Poudel in his study objectified to examine the forms of the EMH (Efficient Market
Hypothesis) that the NEPSE is in. He tried to judge whether the book value per share
and other major financial ratios explain the share price movements. In his study
Poudel had said that the study might not have long-term implications. He has taken
seven joint venture banks for the case studies.
In his findings Poudel has found the market share and the growth rates of different
banking indicators used are not captured by the market value of these banks. Since he
had taken only joint venture banks in his study it cannot give a general concept of
overall price movement of the listed companies in Nepalese stock market. He had only
analyzed the data from 1995 to 1999 to conduct his study.
Because of the fact that different research performed on different headings, which
were directly or indirectly related to the efficiency and effectiveness of the price of the
shares in the security market, the researcher took interest to perform a detail study on
this field.

37
 CHAPTER-III
RESEARCH METHODOLOGY

3.1. Introduction
This chapter highlights the methodology adopted in the process of present study. It
also focuses about sources and limitations of the data, which are used in the present
study. 'Research Methodology' is a way for systematically solving the research
problem. In other words, research methodology indicates the methods and processes
employed in the entire aspects of the study. 'Research Methodology' refers to the
various sequential steps to be adopted by a researcher in studying a problem with
certain objects in view. So, it is the methods, steps and guidelines, which are to be
followed in analysis and it is a way of presenting the collected data with meaningful
analysis.

3.2. Research Design

The research design is a conceptual structure within which a research is conducted. A
research design is a plan for the collection and analysis of data. It is purposeful
scheme of action proposed to be carried out in a sequence during the process of
research. 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.
"A research design is the specification of methods and procedures for acquiring the
information needed. It is the overall operational pattern of framework, of the project
the stipulates what information is to be collected from which sources by what
procedure. If it is a good design, it will ensure that the information obtained is relevant
to the research questions and that it was collected by objective and economic
procedures." PoulE.Green& Donald, S. Tull
"Research Design is the plan, structure and strategy of investigation concerned so as to
obtain answers to research questions and to control variances." Krelingers, F.N. (1983)
The research design of this research basically follows the impact of dividend policy on

the market price. In other words, this research is designed so as to find out the impact

38
on the market price of common stock of a company when dividend is paid to the

shareholders and also how the market price responds when dividend is not paid to the

shareholders. Various analytical and descriptive approaches are used to determine the

impact of dividend policy followed by an organization on its market price.

3.3. Population and Sample

By the end of Dec. 2018, there were 28 commercial banks (including government
owned, private and joint venture) are operating in Nepal. Due to time and resource
factors, it is not possible to study all of them regarding the study topic. Therefore,
sampling will be done selecting from population. The population is as follows:

Table 3.1: List of Registered Commercial Banks as on end December 2018.

1. Prabhu Bank
2. Nepal Bank
3. RastriyaBanijya Bank
4. Agriculture Development Bank
5. Nabil Bank
6. Nepal Investment Bank
7. Standard Chartered Bank Nepal
8. Himalayan Bank
9. Nepal SBI Bank
10. Nepal Bangladesh Bank
11. Everest Bank
12. Bank of Kathmandu Limited (After the merger with Lumbini Bank)
13. Nepal Credit and Commerce Bank Limited (in merger process with Kumari
Bank)
14. Kumari Bank (in merger process with NCC Bank)
15. Laxmi Bank
16. Global IME Bank Limited
17. Citizens Bank International Limited

39
 18. Prime Commercial Bank
19. Sunrise Bank
20. NMB Bank Nepal
21. NIC Asia Bank
22. Siddhartha Bank
23. Machhapuchchhre Bank
24. Mega Bank Nepal Limited
25. Civil Bank Limited
26. Century Bank Limited
27. Sanima Bank
28. Janata Bank Nepal Limited
Source: www.nrb.org.np

Out of 28 commercial banks that are operating their activities in Nepal, only 15 are
listed in Nepal Stock Exchange as on 30 DEC 2018. The researcher has selected 5
joint venture commercial banks for this study. The samples to be selected as follows:
1. Nabil Bank Ltd.
2. Standard charted Bank Nepal Limited
3. Nepal Investment Bank Limited
4. Himalayan Bank Ltd.
5. Everest Bank Ltd.

Thus for this study,

Population Size : 28
Sample Size : 5
The sample size covers about 17.85 % of the population size.

3.4. Nature and Source of Data

The research is highly based on the secondary data which may include the Annual
Reports of the banks under study, Economic Report published from Nepal Rastra
Bank, the stock price for the whole year listed in the Nepal Stock Exchange (NEPSE),

40
Economic Survey published from HMG Ministry of Finance, Financial Status Report
published from World Bank, Financial Reports published from Nepal Stock Exchange
and Securities Exchange Board, various kinds of website which are related on
dividend policies and financial and other relevant data regarding the dividend policies
and practices of the Banks which are published on Newspapers and Magazines.

3.5. Period of the Study

The study is based on five years financial data of the banks under study. (i.e.
Himalayan Bank Ltd., Nabil Bank Ltd and Everest Bank Ltd.) from fiscal year
2013/2017.

3.6. Analysis of Data

3.6.1 Financial Tools
The following financial tools have been used in the present study:
(a) Earning Per Share (EPS)
Earning per share refers the rupee amount earned per share of common stock
outstanding. It measures the profitableness of the shareholders investment. The
earning per share shows the profitability of the banks on a per share basis. The
higher earning indicates the better achievements in terms of the profitability of the
banks by mobilizing their funds and vice versa. Earning per share is computed to
know the earnings capacity and to make comparison between concerned banks.
This ratio can be computed by dividing the earning available to common
shareholders by the total number of common stocks outstanding. Thus,

EPS = Earning Available to Common Stockholders

Number of Common Stock Outstanding

(b) Dividend Per Share (DPS)

Dividend per share indicates the rupee earnings distributed to common
stockholders per share held by them. It measures the dividend distribution to each
equity shareholders. Dividend per share shows the portion of earning distribution

41
 to the shareholders on per share basis. Generally, the higher DPS creates positive
attitude of the shareholders toward the bank is common stock, which consequently
helps to increase the market value of the shares. And it also works as the indicator
of better performance of the bank management.

It is calculated by dividing the total dividend distributed to equity shareholders by

the total number of equity shares outstanding. Thus,

DPS = Total Amount of Dividend Paid to Ordinary Shareholders

Number of Ordinary Shares Outstanding

(c) Dividend Percent (DP)

Dividend percent is the ratio of dividend per share to the paid-up price per
ordinary share. It can be calculated as:

DP = Dividend Per Share

Paid-up Price Per Share.

(d) Dividend Payout Ratio (DPR)

It is the proportion of earning paid in the form of dividend. The dividend payout
ratio is the earnings paid to the equity holders from the earnings of a firm in a
particular year. This ratio shows what percentage of profit is distributed as
dividend and what percentage is retained as reserve and surplus for the growth of
the banks. The dividend payout ratio of a bank depends upon the earnings made by
the bank. Higher earning enhances the ability to pay more dividends and vice
versa.

There is an inverse relationship between dividends and retained earnings. The

higher the dividend payout ratio, the lower will be the proportion of retained
earnings and vice versa. The capacity of internal financing of the firm is checked
by the retention ratio.

42
 It is calculated as the percentage of the profit that is distributed as dividend. This
ratio is calculated by dividing dividend per share by the earning per share. Thus,

DPR = Dividend Per Share

Earning Per Share

And, Retention Ratio = (1 - Dividend Payout Ratio)

= (1 - DPR)

(e) Price Earning Ratio (P/E Ratio)/Earning Multiplier

Price-earning ratio is also called the earnings multiplier. Price-earning ratio is the
ratio between market price per share and earning per share. In other words, this
represents the amount which investors are willing to pay for each rupee of the
firm's earnings.

The P/E ratio measures investor's expectation and market appraisal of the
performance of the firm. The higher P/E ratio implies the high market share price
of a stock given the earning per share and the greater confidence of investor in the
firm's future. This ratio is computed by dividing earning per share to market price
per share. Thus,

P/E Ratio = Market Price Per Share

Earning Per Share

(f) Earning Yield (EY)

Earning yield is the percentage of earning per share to market price per share in the
stock market. In other words, it is a financial ratio relating to earning per share to
the market share price at a particular time. It measures the earning in relation to
market value of share. It gives some idea of how much an investor is earning for
his money. The share with higher earnings yield is worth buying. Earnings yield is

43
 informative to compare the market share prices of stocks in the secondary market.
It is calculated as:

EY Ratio = Earning Per Share

Market Price Per Share

(g) Dividend Yield (DY)

Dividend yield is a percentage of dividends per share on market price per share. It
measures the dividend in relation to market value of share. So, dividend yield is
the dividend received by the investors as a percentage of market price per share in
the stock market.

This ratio highly influences the market price per share because a small change in
dividend per share can bring effective change in the market value of the share. The
share with higher dividend yields is worth buying. Thus the price of higher
dividend yields increase sharply in the market. Dividend has important guidance to
commit funds for the buying of shares in the secondary market. This ratio is
calculated by dividing dividend per share by market price of the stock. Thus,

DY Ratio = Dividend Per Share

Market Price Per Share

(h) Market Price Per Share (MPS) to Book Value Per Share (BVPS)
This ratio measures the market situation per share in the competitive open market
with respect to book value per share of joint venture banks. This ratio indicates the
price that the market is paying for the share that is reported from the net worth of
the banks.

This is important to compare the market share prices of different stocks on the
basis of the book value per share. It shows the market share price of a stock as a
percentage of book value per share and the effect of later on the former. The

44
 higher ratios represent to conclude that the better performance of joint venture
banks in terms of market price per share to book value per share. This ratio can be
derived by dividing market price per share by book value per share. Thus,

MPS to BVPS Ratio = Market Price Per Share

Book Value Per Share

(i) Net Worth Per Share

It is a rupee value per share. It is calculated dividing Book Value of Net Worth (or
Net Worth) by total numbers of shares outstanding. Thus,

Net Worth Per Share = Net Worth

No. of Shares

3.6.2 Statistical Tools

Besides the financial tools, various statistical tools have been used to conduct this
study. The pattern of available data is a major determinant to analyze the data. So
analysis of data will be done according to pattern of available data. The result of
analysis has been properly tabulated, compared, analyzed and interpreted. In this
study, the following statistical tools are used to analyze the relationship between
dividend and other variables.
(a) Arithmetic Mean or Average (X)
An average is the value, which represents a group of values. It depicts the
characteristic of the whole group. It is an envoy of the entire mass of homogeneous
data. Generally the average value lies somewhere in between the two extremes, i.e.
the largest and the smallest items. It is calculated as follows:

X1 + X2 + X3 +...............…. + Xn
Arithmetic Mean =
N
or, (X) = X

45
 Where,

X = sum of the sizes of the items

N = number of items

(b) Standard Deviation ()

Karl Pearson first introduced the concept of standard deviation in 1983. "It is the
most usual measure of dispersion and it represents the square root of the variance
of a group of numbers, i.e. the square root of the sum of the squared differences
between a group of numbers and their arithmetic mean". Standard deviation is the
positive square root of the arithmetic average of the squares of all the deviations
measured from the arithmetic average of the series. The standard deviation
measures the absolute dispersion of a distribution. The greater the amount of
dispersion the greater the standard derivation, i.e. greater will be the magnitude of
the deviations of the values from their mean. A small standard deviation means a
high degree of uniformity of the observation as well as homogeneity of a series. It
is denoted by a Greek letter '' (Sigma) and is calculated as follows:

Standard Deviation (σ) =  (X – X)2

N

Where,

N = Number of items in the series.

X = Mean

X = Variable

(c) Coefficient of Variation (C.V.)

It is the measurement of the relative dispersion developed by Karl Pearson. It is
used to compare the variability of two or more series. The series with higher
coefficient of variation is said to be more variable, less consistent, less uniform,

46
 less stable and less homogenous. On the contrary the series with less coefficient of
variation is said to be less variable, more consistent, more uniform, more stable
and more homogenous. It is denoted by C.V. and is obtained by dividing the
standard deviation by arithmetic mean. Thus,

σ x 100
Coefficient of Variation (C.V.) = S.D. x 100 =
(X)
Mean

Where,

 = Standard Deviation

(X) = Mean

(d) Coefficient of Correlation (r)

According to Richard I. Levin, Correlation analysis is the statistical tools that we
can used to describe the degree to which are variable is linearly related to another".
The correlation analysis is the technique used to measure the closeness of the
relationship between the variables. It helps us in determining the degree of
relationship between two or more variables. It describes not only the magnitude of
correlation but also its direction. The coefficient of correlation is a number, which
indicates to what extent two variables are related with each other and to what
extent variations in one leads to the variations in the other.The value of coefficient
of correlation always lies between +1. A value of –1 indicates a perfect negative
relationship between the variables and a value of +1 indicates a perfect positive
relationship. A value of zero indicates that there is no relation between the
variables. The zero correlation coefficient means the variables are uncorrelated.
The closer r is to +1 or –1, the closer the relationship between the variables and
closerr is to zero (o), the less close relationship. The algebraic sign of the
correlation coefficient indicates the direction of the relationship between two
variables, whether direct or inverse, while the numerical value of the coefficient is

47
 concerned with the strength, or closeness of the relationship between two
variables.

Thus, in this study, the degree of relationship between market price and other
relevant financial indicators such as dividend per share, earning per share,
dividend payout ratio etc is measured by the correlation coefficient. The
correlation coefficient can be calculated as:

r = Cov (X Y)

XY

or,
 (X-X) (Y-Y)
r =
(N) X Y

or,
NXY - XY
r =
√ NX2 - (X) 2 √ NY2 - (Y) 2

Where,

X, Y are the standard deviation of the distributions of X and Y values

respectively.

Cov (X,Y) = covariance of X,Y value

= √ (X-X) (Y-Y)
N

X =1 (X - X)2 Y = 1 (Y - Y)2

N , N

Under this study, the correlation between the following variables are analyzed :

a) Market Price Per Share and Earning Per Share

b) Market Price Per Share and Dividend Per Share
c) Market Price Per Share and Dividend Percent

48
 d) Market Price Per Share and Dividend Payout Ratio
e) Market Price Per Share and Price Earning Ratio
f) Market Price Per Share and Earning Yield
g) Market Price Per Share and Dividend Yield
h) Market Price Per Share and 'MPS to BVPS' Ratio
i) Market Price Per Share and Net Worth Per Share
j) Earning Per Share and Dividend Per Share
k) Earning Per Share and Dividend Payout Ratio
l) Dividend Per Share and Dividend Payout Ratio
m) Dividend Per Share and Net Worth Per Share
n) Earning Yield and Dividend Yield

(e) Coefficient of Determination (R2)

The coefficient of determination is the primary way to measure the extent, or
strength, of the association that exists between two variables, X and Y. "Coefficient
of determination measures only the strength of a linear relationship between two
variables." It refers to a measure of the total variance in a dependent variable that
is explained by its linear relationship to an independent variable. The coefficient of
determination is denoted by R2 and the value lies between zero and unity. The
closer to unity, the greater the explanatory power. A value of one can occur only if
the unexplained variation is zero, which simply means that all the data points in
the scatter diagram fall exactly on the regression line. The R2 is always a positive
number. It can't tell whether the relationship between the two variables is positive
or negative. The R2 is defined as the ratio of explained variance to the total
variance. Thus,

Coefficient of determination (R2) = Explained Variance

Total Variance

or, R2 = 1- Unexplained Variance

Total Variance

49
(f) Regression Analysis
Francis Galton was the first person to introduce the concept of regression. Regression
refers to an analysis, which is involving the fitting of an equation to a set of data
points, generally by the method of least square. In other words the regression is a
statistical method for determining relationships between the variables by the
establishment of an approximate functional relationship between them. It is used to
determine that whether the dependent variable is influenced by the given independent
variable or not. It is considered as a useful tool for determining the strength of
relationship between two (Simple Regression) or more (Multiple Regression)
variables. It is also used to predict value of one variable given the value of other
variables.

Simple linear regression analysis is used to find the relationship between two
variables. In this study, the following simple regressions have been analyzed.

i) Market Price Per Share on Earning Per Share

Y = a + bX

Where,

Y = Market Price Per Share

a = Regression Constant

b = Regression Coefficient

X = Earning Per share

This model has been constructed to examine the relationship between market price per
share (dependent variable) and earning per share (independent variable).

ii) Market Price Per Share on Dividend Per Share

Y = a + bX

50
 Where,

Y = Market Price Per Share

a = Regression Constant

b = Regression Coefficient

X = Dividend Per share

This model has been constructed to examine the relationship between market price per
share (dependent variable) and dividend per share (independent variable).

iii) Market Price Per Share on Dividend Percent

Y = a + bX

Where,

Y = Market Price Per Share

a = Regression Constant

b = Regression Coefficient

X = Dividend Percent

This model has been constructed to examine the relationship between market price per
share (dependent variable) and dividend percent (independent variable).

iv) Market Price Per Share on Dividend Payout Ratio

Y = a + bX

Where,

Y = Market Price Per Share

a = Regression Constant

b = Regression Coefficient

X = Dividend Payout Ratio

This model has been constructed to examine the relationship between market price per
share (dependent variable) and dividend payout ratio (independent variable).

51
v) Market Price Per Share on Dividend Yield
Y = a + bX

Where,

Y = Market Price Per Share

a = Regression Constant

b = Regression Coefficient

X = Dividend Yield

The relationship between market price per share (dependent variable) and dividend
yield (independent variable) can be explained through this model.

vi) Dividend Per Share on Earning Per Share

Y = a + bX

Where,

Y = Dividend Per Share

a = Regression Constant

b = Regression Coefficient

X = Earning Per Share

The relationship between dividend per share (dependent variable) and earning per
share (independent variable) can be explained through this model.

vii) Dividend Per Share on Net Worth Per Share

Y = a + bX

Where,

Y = Dividend Per Share

a = Regression Constant

b = Regression Coefficient

X = Net Worth Per Share

52
This model has been constructed to examine the relationship between dividend per
share (dependent variable) and net worth per share (independent variable).
In order to obtain the value of a and b, we have the following two normal
equations.

Y = na + bX

XY = aX + bX2

Where,

‘a’ and ‘b’ are unknown.

n = number of observation in the sample

i) Regression Constant (a)

The value of constant is the intercept of the model, when the independent variable
is zero; it indicates the average level of dependent variable. In other word, it is
better to understand that 'a' (constant) indicates the mean or average effect on
dependent variable if all the variables omitted from the model.

ii) Regression Coefficients (b)

The regression coefficient of each independent variable shows the relationship
between that variable and value of dependent variable, holding the effects of all
other independent variables of the regression model constant. In other words, these
coefficients explain how changes in independent variables affect the values of
dependent variables estimate.

iii) Standard Error of Estimate (S.E.E.)

Practically, the perfect prediction is not possible with the help of regression
equation. Standard Error of Estimate is used to measure the reliability of the
estimating equation. It measures the variability or scatter of the observed values
around the regression line. It also measures the reliability of the estimating
equation, indicating the variability of the observed values differ from their
predicted values on the regression line.

53
The larger the value of S.E.E., the greater the scattering or dispersion of points
around the regression line, conversely, if S.E.E. is equals to zero, then, there is no
variation about the line and the correlation will be perfect. So, we expect the
estimating equation to be a 'perfect' estimator of the dependent variable. In that
case, all the data points would lie directly on the regression line and no points
would be scattered around it. Similarly, the smaller the S.E.E., the closer will be
the dots to the regression line and the better the estimates based on the equation for
this line. Thus, with the help of standard error of estimate, it is possible for
ascertaining how well and representative the regression line is as a description of
the average relationship between two series.

X X √1 - r
2
S.E. =
Y √N

iv) t-statistics
Sir William S. Gosset developed t-test, which is used to test the hypothesis when
population variance is not known. It is basically used when the sample size is less
than 30 and the population standard deviation is unknown. For applying t-test in
context of small samples the t value is calculated and then compared with the
tabulated value of freedom. If the calculated value of (t) exceeds the table value
(say t0.05) we infer that the difference is significant at 5% level. But if (t) is less
than the concerning table value of the (t) the difference is not treated as significant.
t-value = b
S.E.

54
 CHAPTER IV
PRESENTATION AND ANALYSIS OF DATA

4.1. Presentation of Financial Variables

Under this heading the financial variables have been presented and analyzed and
calculations are done using the programme "SPSS 10.0 For Windows.

4.1.1. Earning Per Share (EPS)

EarningPer Share of Banks Under Study is tabulated as follows:
Table 4.1
Bank 2013 2014 2015 2016 2017 Mean Std. C.V.
Dev
SCBNL 109.90 77.65 69.51 72.60 65.70 79.07 15.09 19.72
HBL 37.46 49.17 13.98 41.74 8.68 30.21 17.83 59.04
NABIL 67.68 44.50 67.84 83.79 59.26 64.61 14.32 22.17
EBL 99.99 100.16 83.18 88.55 91.88 92.75 36.70 7.10
NIBL 37.42 52.55 39.06 27.60 46.20 40.68 28.41 8.42
Source: Annual reports of sample bank
The EPS of Standard Chartered Bank Nepal Ltd. (SCBNL) range between Rs. 109.90
to Rs. 65.70 during the period of study. During this period, the average EPS is Rs.
79.07. The standard deviation of the EPS under the period of study is 15.09. The C.V.
of 19.72 indicates that there is a moderate fluctuation of 19.72% in the EPS of
SCBNL, during the period of study.

The average EPS of NABIL Bank Ltd, during this period of study is Rs. 64.61. It
stayed within the range of Rs. 83.79 to Rs. 44.50. The standard deviation of EPS is
14.32 whereas the coefficient of variation is 22.17%. The CV indicates a moderate
fluctuation in the EPS of the bank.

Everest Bank Ltd. (EBL) has the EPS range between Rs. 100.16 and Rs. 83.18 during
the period of study. An average EPS of Rs. 92.75 is noted during this period. The
standard deviation of the EPS is 6.59. The C.V. of 7.10 indicates that there is a
fluctuation of 7.10% in the EPS of EBL during the period of study.

55
Nepal Investment Bank Ltd. (NIBL), within the period of study, had an average EPS
of Rs. 40.08, ranging between Rs. 52.55 and Rs. 27.60. The standard deviation is 8.42
and the fluctuation of 20.69% in the EPS is seen during this period, which shown by
the coefficient of variation of the bank.

Figure No: 4.1

The earning per share of the sample banks

120

100

80
SCBNL
HBL
60
NABIL
EBL
40
NIBL

20

0
2013 2014 2015 2016 2017 Mean Std. Dev C.V.

This figure 4.1 analysis, it can be seen that the average EPS of SCBNL is the highest
and that of HBL is the lowest. The EPS range of the banks under study during this
period is between Rs. 109.90 and Rs. 10.41. Similarly the standard deviation of HBL
is the highest and EBL is the lowest. The coefficient of variation of these banks shows
that there is fluctuation in the EPS. If compared, SCBNL has the most consistent EPS
among all sample banks.

4.1.2. Dividend Per Share (DPS)

The dividend per share of the banks under study is stated in the table below:

56
Table:4.2

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 90.00 70.00 80.00 100.00 100.00 88.00 13.04 14.82
HBL 20.00 20.00 10.00 15.00 0.00 13.00 8.37 64.36
NABIL 0.00 30.00 50.00 55.00 40.00 35.00 21.79 62.27
EBL 7.50 15.00 15.00 0.00 5.00 8.50 6.52 76.70
NIBL 50.00 50.00 30.00 25.00 0.00 31.00 20.74 66.89
Source: Annual reports of sample bank

The average DPS of Standard Chartered Bank Nepal Ltd. (SCBNL) is Rs. 88.00 with
the standard deviation of 13.04. The highest and lowest DPS are Rs. 100 and Rs. 70
respectively. The coefficient of variation is 14.82%, which indicates that there is less
fluctuation in the DPS of SCBNL during the period of study.

Himalayan Bank Ltd (HBL) has an average DPS of Rs. 13.00. The highest DPS is Rs.
20.00 whereas it has not paid dividend in the year 2004/05. The standard deviation is
8.37 and coefficient of variation is 64.36%. The CV indicates that the DPS of HBL is
quite fluctuating.

Everest Bank Ltd. (EBL) paid the highest DPS of Rs. 15.00. No dividend was paid in
the year 2003/2004. An average DPS of Rs. 8.50 has been noted during the study
period. The standard deviation of the DPS is 6.52. The C.V. of 76.70% indicates that
there is a high fluctuation in the DPS of EBL.

Nepal Investment Bank Ltd (NIBL) has an average DPS of Rs. 31.00, ranging
between Rs. 50.00 and Rs. 25.00, during the period of study. The standard deviation is
20.74 and the fluctuation of 66.89% in the DPS is seen during this period.

57
 Figure No: 4.2

120

100

80
SCBNL

60 HBL
NABIL

40 EBL
NIBL
20

0
2013 2014 2015 2016 2017 Mean Std. C.V.
Dev

This figure 4.2 calculations, SCBNL has the highest average DPS and EBL has the
lowest. The CV indicates that among the banks under study during the period, SCBNL
has the highest consistency in paying dividend whereas the DPS of EBL is highly
fluctuating.

4.1.3. Dividend Percent (DP)

Dividend percent is the ratio of DPS to the Paid Up Price Per Share. It is measured in
percentage. The dividend percent during the period of study are presented in the table
below.

Dividend Percent of Banks Under Study is stated in the table below:

Table:4.3

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 90.00 70.00 80.00 100.00 100.00 88.00 13.04 14.82
HBL 20.00 20.00 10.00 15.00 0.00 13.00 8.37 64.36
NABIL 0.00 30.00 50.00 55.00 40.00 35.00 21.79 62.27
EBL 7.50 15.00 15.00 0.00 5.00 8.50 6.52 76.70
NIBL 50.00 50.00 30.00 25.00 0.00 31.00 20.74 66.89
Source: Annual reports of sample bank

58
All thebanks under study have the same paid up price of Rs. 100 per share but the DPS
is different. From the above data, SCBNL pays the highest dividend on the face value
of share and EBL the lowest. The CV indicates that among the banks under study
during the period, SCBNL has the highest consistency in dividend percent whereas the
dividend percent of EBL is highly fluctuating.

4.1.4. Dividend Payout Ratio (DPR)

The DPR of the banks under study are stated in the table as follows:

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 54.41 54.00 75.57 86.49 78.81 69.86 14.83 21.22
HBL 53.39 40.68 71.53 35.94 0.00 40.31 26.41 65.52
NABIL 0.00 67.41 73.70 65.64 67.50 54.85 30.81 56.18
EBL 42.59 29.62 21.76 0.00 6.04 20.00 17.32 86.62
NIBL 49.32 72.15 88.76 46.55 0.00 51.36 33.55 65.30
Analysis of Mean DPR 47.28 18.55 39.24
Source: Annual reports of sample bank

The average DPR of Standard Chartered Bank Nepal Ltd. (SCBNL) is 69.86%. It
means that SCBNL generally pays 69.86% of its total earning as dividend to its
shareholders. The standard deviation of DPR is 14.83. The coefficient of variation is
21.22%. This value elucidate that there is only about 21% fluctuations in the DPR of
the bank over the years.

An average DPR of 40.31% of Himalayan Bank Ltd (HBL) indicates that HBL
generally pays out 40.31% of its earning as dividend. The standard deviation is 26.41
and coefficient of variation is 65.52%. The CV indicates that the DPR of HBL widely
varies during the period of study.

NABIL Bank Ltd has an average DPR of 54.85% during this period of study. It means
that it generally pays 54.85% of its earning to its shareholders in form of dividend.
The standard deviation of DPR was 30.81 whereas the coefficient of variation of
56.18% indicates the fluctuating nature of DPS in NABIL Bank Ltd.

59
If analysis is done taking the mean DPR of the sample banks, the average Dividend
payout ration of the sample banks comes out to 47.28% with a standard deviation of
18.55 and CV of 39.24% It indicates that, in average, out of the total earnings made,
47.28% is distributed as dividend to the shareholders with a fluctuation of 39.24%.

4.1.5. Market Price Per Share (MPS)

The average market price per share of the banks under study is presented in table
form as follows:

Table: 4.5

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 1050 840 1162 1985 2144 1436.20 587.78 40.93
HBL 412 440 562 562 1500 695.20 455.11 65.47
NABIL 500 430 700 1400 1500 906.00 507.62 56.03
EBL 153 252 616 1502 1100 724.60 571.65 78.89
NIBL 719 600 822 1401 1150 938.40 329.76 35.14
Source: Annual reports of sample bank

The average of closing MPS of Standard Chartered Bank Nepal Ltd. (SCBNL) during
the period of study is Rs. 1436.20 with a standard deviation of 587.78 and a
coefficient of variation of 40.93%.

During the period of study, Himalayan Bank Ltd. (HBL) had an average closing MPS
of Rs. 695.20 with a standard deviation of 455.11. The coefficient of variation shows
that there is a fluctuation of 65.47% in closing MPS of HBL.

The average of closing MPS of NABIL Bank Ltd, during this period of study is Rs.
906.00. It stayed within the range of Rs. 1500 and Rs. 430. The standard deviation of
closing MPS is 507.62 whereas the coefficient of variation is 56.11%. The CV
indicates an above-moderate fluctuation in the closing MPS of the bank.

From the above data and calculations, it can be seen that the average closing MPS of
SCBNL is the highest and that of HBL is the lowest. Similarly the standard deviation
of SCBNL is the highest and NIBL is the lowest. The coefficient of variation of these
banks shows that there is an above-moderate level of fluctuation in the MPS. The

60
closing MPS of the banks reached the highest point in the FY 2004/05 during the
period of study.

4.1.6. Price Earning Ratio (P/E Ratio)

The price-earning ratio of the banks under study is presented in table as follows.

Table: 4.6

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 6.35 6.48 10.98 17.17 16.90 11.58 5.32 45.97
HBL 11.00 8.95 40.20 13.46 172.61 49.24 70.12 142.39
NABIL 7.39 9.66 10.32 16.71 25.31 13.88 7.27 52.37
EBL 8.68 4.79 8.66 12.68 13.18 9.62 3.46 35.98
NIBL 7.09 8.65 24.35 26.10 34.65 20.17 11.90 58.98
Source: Annual reports of sample bank

The average P/E Ratio of SCBNL, during this period of study is 11.58. It is within the
range of 17.17 and 6.35. The standard deviation of P/E Ratio is 5.32 whereas the
coefficient of variation of 45.97% indicates the fluctuating nature of P/E Ratio in
SCBNL.

Himalayan Bank Ltd. (HBL) has an average P/E Ratio of 49.24, ranging between
172.61 and 8.95, during the period of study. The standard deviation is 70.12 and the
fluctuation of 142.39% in the P/E Ratio is seen during this period, which is very high.

NABIL Bank Ltd has an average P/E Ratio of 13.88. The standard deviation is 7.27
and coefficient of variation is 52.37%. The CV indicates that the P/E Ratio of NABIL
Bank Ltd is quite fluctuating.

From the above calculations, HBL has the highest average P/E Ratio and EBL has the
lowest. The CV indicates that among the banks under study during the period, EBL
has the highest consistency in P/E Ratio whereas the P/E Ratio of HBL is highly
fluctuating.

61
4.1.7. Earning Yield (EY)

Earning yield of the banks under study is presented in the table below.

Table : 4.7

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 15.75 15.43 9.11 5.82 5.92 10.41 4.92 47.23
HBL 9.09 11.18 2.49 7.43 0.58 6.15 4.47 72.67
NABIL 13.54 10.35 9.69 5.98 3.95 8.70 3.78 43.41
EBL 11.51 20.89 11.54 7.89 7.53 11.87 5.39 45.41
NIBL 14.10 11.56 4.11 3.83 2.89 7.30 5.15 70.55
Source: Annual reports of sample bank

The average EY of 10.41% with the standard deviation of 4.92 is seen for Standard
Chartered Bank Nepal Ltd. (SCBNL). The highest and lowest EY are 15.75% and
5.82% respectively. The coefficient of variation is 47.23%, during the period of study.

Himalayan Bank Ltd (HBL) has an average EY of 6.15%. The standard deviation is
4.47 and coefficient of variation is 72.67%. The CV indicates that the EY of HBL is
quite fluctuating.

The average EY of NABIL Bank Ltd, during this period of study is 8.70%. It is within
the range of 13.54% and 3.95%. The standard deviation of EY is 3.78 whereas the
coefficient of variation of 43.41%. The coefficient of variation in EY of NABIL is the
lowest among the banks under study.

From the above calculations, EBL has the highest average EY and HBL has the
lowest. The CV indicates that among the banks under study during the period, NABIL
has the highest consistency in its earning yield whereas the earning yield of HBL is
highly fluctuating.

4.1.8. Dividend Yield (DY)

The dividend yield of the banks under study is presented in the table as below.

62
 Table:4.8

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 8.57 8.33 6.88 5.04 4.66 6.70 1.81 27.03
HBL 4.86 4.55 1.78 2.67 0.00 2.77 2.01 72.60
NABIL 0.00 6.98 7.14 3.93 2.67 4.14 3.02 72.81
EBL 4.90 6.26 2.51 0.00 0.45 2.82 2.73 96.69
NIBL 6.95 8.33 3.65 1.78 0.00 4.14 3.48 83.98
Source: Annual reports of sample bank
The DY of Standard Chartered Bank Nepal Ltd. (SCBNL) range between 8.57% and
4.66% during the period of study. During this period, the average DY is 6.70%. The
standard deviation of the DY under the period of study is 1.81. The C.V. of 27.03%
indicates that the fluctuation of in DY of SCBNL is the lowest.

During the period of study, Himalayan Bank Ltd. (HBL) had an average DY of 2.77%
with a standard deviation of 2.01. The DY range between 4.86% and 0% (in 2004/05).
The coefficient of variation shows that there is a fluctuation of 72.60% in DY of HBL.

The average DY of NABIL Bank Ltd, during this period of study is 4.14%. It stayed
within the range of 7.14% and 0.00% (in 1996/97). The standard deviation of DY is
3.02 whereas the coefficient of variation is 72.81%. The CV indicates a high
fluctuation in the DY of the bank.

From the above data and calculations, it can be seen that the average DY of SCBNL is
the highest and that of HBL is the lowest. The DY range of the banks under study
during the period is between 8.57% and 0.00%. Similarly the standard deviation of
NIBL is the highest and SCBNL is the lowest. The coefficient of variation of these
banks shows a high level of fluctuation in the DY. If compared, SCBNL has the most
consistent DY among these banks.

4.1.9. Market Price Per Share (MPS) to Book Value Per Share (BVPS)

The ratios of the banks under study are presented in the table as follows.

63
 Table:4.9

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 1.95 1.89 3.65 6.64 5.25 3.88 1.86 47.90
HBL 2.51 2.01 2.10 3.00 9.05 3.73 2.68 71.80
NABIL 1.70 2.04 3.13 5.59 6.94 3.88 2.05 52.80
EBL 2.43 1.60 2.89 4.46 4.40 3.16 1.12 35.47
NIBL 1.91 2.21 3.00 4.62 4.17 3.18 1.06 33.38
Source: Annual reports of sample bank

The average ratio of MPS to BVPS of Standard Chartered Bank Nepal Ltd. (SCBNL)
is 3.88. The standard deviation of the ratio is 2.08. The coefficient of variation is
53.55%. This value elucidate that there is only about 53% fluctuations in the ratio of
MPS to BVPS of the bank over the years.

An average MPS to BVPS ratio of 3.73 of Himalayan Bank Ltd (HBL) is noted during
the period of study. The standard deviation is 3.00 and coefficient of variation is
80.27%. The CV indicates that the ration of MPS to BVPS of HBL is highly
fluctuating during the period of study.

NABIL Bank Ltd has an average MPS to BVPS ratio of 3.88 during this period of
study. The standard deviation of the ratio is 2.29 whereas the coefficient of variation
of 59.04% indicates the above-moderate fluctuating nature of MPS to BVPS ratio in
NABIL Bank Ltd.

An average MPS to BVPS ratio of 3.16 is noted during the study period for Everest
Bank Ltd. (EBL). The standard deviation of the ratio of MPS to BVPS is 1.25. The
C.V. of 39.66% shows a moderate fluctuation in the ratio between MPS and BVPS to
EBL during the study period.

The above calculation shows that, the average ratio of MPS to BVPS of SCBNL and
NABIL are equal and are the highest among the banks under study, while this ratio is
lowest for EBL. Further the CV of the ratio of MPS to BVPS shows consistency in the
ratio of NIBL and wide fluctuation in the ratio of HBL.

64
4.1.10 Net Worth Per Share (NWPS)

The Net Worth Per Share of the banks under study are stated in the table as
follows:

Table:4.10

Bank 2013 2014 2015 2016 2017 Mean Std. C.V.

Dev
SCBNL 538.82 445.17 282.26 298.88 327.50 378.53 98.34 25.98
HBL 163.84 218.66 164.22 187.54 165.73 180.00 21.28 11.83
NABIL 307.67 210.92 240.10 266.53 232.06 251.46 33.27 13.23
EBL 62.95 149.97 207.11 336.75 249.87 201.33 92.21 45.80
NIBL 249.33 271.77 273.37 303.10 275.96 274.71 17.10 6.23
Source: Annual reports of sample bank
The table 4.10 shows that, the average Net Worth Per Share (NWPS) of the banks
under study range between Rs. 378.53 (SCBNL) and Rs. 180.00 (HBL). NABIL, EBL
and NIBL have the average NWPS of Rs. 251.46, Rs. 201.33 and Rs. 274.71
respectively. Similarly the CV shows the highest consistency in the NWPS of NIBL
(6.23%) whereas the NWPS of EBL has the highest fluctuating tendency (45.80%)
among the banks. The CV of NWPS of SCBNL, HBL and NABIL are 25.98%,
11.83% and 13.23% respectively, which shows a moderate level of fluctuation.

4.2. Statistical Tools

The statistical tools (i.e. correlation coefficient and regression analysis) is

calculated using the program 'SPSS 10.0 for Windows.'

4.2.1. Correlation Analysis

The correlation coefficient measures the relation between two or more variables. It
also measures the extent to which one variable effects the other one. The
correlation coefficient lies between +1 and –1. The +1 coefficient indicates that the
variables are perfectly positively correlated and –1 coefficient indicates that the
variables are perfectly negatively correlated. And if the correlation coefficient is 0,
it means that the variables are not related to each other. The negative correlation
indicates that increase in value of one variable leads to decrease in the value of the
other and positive correlation indicates that increase in value of one variable leads

65
 to increase in the value of the other variable also. The numbers indicate the degree
of correlation between the variables.

The table given below shows the correlation coefficient (r) between the financial
variables. The data used for calculation can be seen in Appendix – B.

Standard Chartered Bank Nepal Ltd.

Table 4.11: Correlation Coefficient of SCBNL

EPS DPS DP DPR PER EY DY MPS TO NWPS

BVPS
MPS - 0.888 0.888 0.841 0.964 - - 0.918 0.600
0.318 0.900 0.963
EPS - 0.052 - - - - - - -
0.706
DPS - - - 0.667 - - - - -0.292
EY - - - - - - 0.976 - -

The table 4.11 depicts that the MPS of SCBNL has positive correlation with its
DPS and DPR. It is because of the reason that it is paying dividend regularly and
with the payment of dividend, the MPS has been increasing. The same relation
exists between MPS and DP. In the same way, MPS of SCBNL is positively
correlated with its P/E Ratio, MPS to BVPS ratio and NWPS. On the other hand
the MPS is negatively correlated the EPS, EY and DY. Similarly, the EPS has
positive relation with its DPS. But it is negatively correlated with the DPR since in
the FY 2000/01, even if there is increase in EPS, the DPR has decreased. Also the
DPS of SCBNL is positively correlated with the DPR but has negative correlation
with its NWPS. In the same way the EY is positively correlated with the DY.

Himalayan Bank Ltd.

66
 Table 4.12 Correlation Coefficient of HBL

EPS DPS DP DPR PER EY DY MPS NWPS

TO
BVPS
MPS -0.727 -0.926 -0.926 -0.828 0.990 -0.772 -0.854 0.986 0.362
EPS - 0.897 - 0.219 - - - - -
DPS - - - 0.584 - - - - 0.509
EY - - - - - - 0.945 - -

The table 4.12 indicates that the MPS of HBL is negatively correlated with its DPS,
DP, DPR and DY, which is because of irregularity in payment of dividends. Also it
has negative correlation with its EPS and EY due to regular decrease in earnings of the
bank. MPS has positive correlation with its P/E Ratio, MPS to BVPS ratio and NWPS.
Similarly, the EPS is positively correlated with its DPS and DPR. It is because of the
reason that the DPS and DPR are decreased with the decrease in the EPS. Also the
DPS of HBL has positive correlation with the DPR and NWPS. The correlation
between EY and DY is also positive due to the same type of relation of EY and DY
with the MPS.

NABIL Bank Ltd.

Table 4.13: Correlation Coefficient of NABIL

EPS DPS DP DPR PER EY DY MPS NWPS

TO
BVPS
MPS 0.480 0.595 0.595 0.404 0.919 -0.928 -0.207 0.984 -.700
EPS - 0.319 - -0.125 - - - - -
DPS - - - 0.900 - - - - -0.534
EY - - - - - - -0.106 - -

The table 4.13 is found that the MPS of NABIL has positive correlation with its DPS,
DP and DPR. It is because of regularity in paying dividend. In the same way, MPS of
NABIL is positively correlated with its EPS, P/E Ratio and MPS to BVPS ratio. In the

67
other hand the MPS has negative correlation with the EY, DY and NWPS. Likewise,
the EPS has positive correlation with the DPS but is negatively correlated with the
DPR. It is because in some years, the DPR has been increased even if the EPS is
decreased. Also the DPS is positively correlated with the DPR but has negative
correlation with its NWPS. In the same way the EY of the bank is negatively
correlated with its DY.

Everest Bank Ltd.

Table 4.14 Correlation Coefficient of EBL

EPS DPS DP DPR PER EY DY MPS TO NWPS

BVPS
MPS 0.953 -0.747 -0.747 -0.970 0.844 -0.709 -0.939 0.929 0.960
EPS - -0.542 - -0.973 - - - -
DPS - - - 0.598 - - - - -0.550
EY - - - - - - 0.881 - -
The table 4.14 reveals that the MPS of EBL is negatively correlated with its DPS, DP,
DPR and DY, because of irregularity in payment of dividends. It has also negative
correlation with its EY. MPS has positive correlation with its EPS, P/E Ratio, MPS to
BVPS ratio and NWPS. Similarly, the EPS is negatively correlated with both DPS and
DPR. It is because of the reason that the DPS and DPR are decreasing even if the EPS
has increased. Also the DPS of HBL has positive correlation with the DPR but is
negatively correlated with NWPS. The correlation between EY and DY is also
positive due to the same type of relation of EY and DY with the MPS.

Nepal Investment Bank Ltd.

Table 4.15: Correlation Coefficient of NIBL

EPS DPS DP DPR PER EY DY MPS TO NWPS

BVPS
MPS -0.474 -0.725 -0.725 -0.543 0.770 -0.751 -0.860 0.960 0.798
EPS - 0.788 - 0.140 - - - - -
DPS - - - 0.697 - - - - -0.470
EY - - - - - - 0.907 - -

68
The table 4.15 reveals that the MPS of NIBL has negative correlation with the DPS,
DP, DPR and DY because of non-payment of dividend in FY 2003/04. The same
relation exists between MPS to EPS and EY. It is because of regular decrease in EPS,
even if the MPS is in increasing trend. In the same way, MPS of NIBL is positively
correlated with its P/E Ratio, MPS to BVPS ratio and NWPS. Similarly, the EPS has
positive correlation with both of its DPS and DPR because they are also decreasing
with the decrease in EPS. In the same way, DPS of NIBL is positively correlated with
the DPR but has negative correlation with its NWPS. Also the EY has positive
correlation with DY of the bank.

From the above analysis, the MPS of the banks (SCBNL and NABIL) who are paying
dividend regularly have positive correlation with their dividend component i.e. DPS,
DP, and DPR. It means that the MPS of these banks will increase with the increase in
dividend and vice versa. In contrast the MPS of the banks (HBL, EBL and NIBL) who
have fluctuating nature of dividends are negatively correlated with their dividend
component i.e. increase in dividend leads to decrease in MPS and vice versa. The non-
payment of dividend also has lead to the negative correlation between MPS and the
dividend components.

The correlation between MPS and EPS of SCBNL, HBL and NIBL is negative, which
is due to the reason that even if there is decrease in EPS, the MPS of the banks have
increased. On the other hand the MPS and EPS of NABIL and EBL are positively
correlated, which means that with increase in MPS, the EPS will also increase and
vice versa.

Further, normally there exists positive correlation between EY and DY (in case of
SCBNL, HBL, EBL and NIBL) i.e. with increase in EY, the DY will also increase and
vice versa. But in case of NABIL, there exists negative correlation between EY and
DY i.e. DY will decrease if EY will increase and vice versa.

69
4.2.2. Regression Analysis

4.2.2.1. MPS on EPS

MPS = a + b × EPS

Table 4.16: Regression Analysis of MPS on EPS

Bank Variables B Std T value Sig. T R2

Error
Constant (a) 2501.84 - 1.35 0.270
SCBNL 0.10
EPS -8.28 14.23 -0.58 0.601
Constant (a) 1255.49 - 3.63 0.036
HBL 0.53
EPS -18.55 10.12 -1.83 0.164
Constant (a) -192.80 - -0.16 0.881
NABIL 0.23
EPS 17.01 17.95 0.95 0.413
Constant (a) -273.83 - -1.34 0.271
EBL 0.91
EPS 14.84 2.72 5.46 0.012
Constant (a) 1259.02 - 3.36 0.044
NIBL 0.22
EPS -5.50 5.90 -0.93 0.420

The above table of regression analysis shows that among the banks under study,
SCBNL, HBL and NIBL have negative relation between MPS and EPS, while NABIL
and EBL have positive relation. The regression relation between MPS and EPS of
SCBNL indicates that with an increase of Rs. 1 in EPS, the MPS will decrease by Rs.
8.28 other variables remaining constant. Similarly, in case of HBL and NIBL, with an
increase of Rs. 1 in EPS, the MPS will decline by Rs. 18.55 and Rs. 5.50 respectively
assuming that the other variables are constant. In contrast there will be increase in
MPS of NABIL and EBL by Rs. 17.01 and Rs. 14.84 respectively with an increase in
EPS by Rs. 1 remaining other variables constant.

The standard error of estimate of SCBNL, HBL, NABIL, EBL and NIBL are 14.23,
10.12, 17.95, 2.72 and 5.90 respectively. These values indicate the probable error in
the predicted value for the respective banks.

70
4.2.2.2. MPS on DPS

MPS = a + b × DPS

Table 4.17: Regression Analysis of MPS on DPS

Bank Variables b Std T value Sig. T R2

Error
Constant (a) -2087.94 - -1.97 0.144
SCBNL 0.79
DPS 40.05 11.95 3.35 0.044
Constant (a) 1349.75 - 7.57 0.005
HBL 0.86
DPS -50.35 11.89 -4.24 0.024
Constant (a) 420.61 - 0.97 0.403
NABIL 0.35
DPS 13.87 10.80 1.28 0.289
Constant (a) 1281.00 - 3.69 0.035
EBL 0.56
DPS -65.46 33.69 -1.94 0.147
Constant (a) 1295.57 - 5.67 0.011
NIBL 0.53
DPS -11.52 6.33 -1.82 0.166

The table 4.17 of regression analysis of MPS and DPS shows that among the banks
under study, SCBNL and NABIL have positive regression relation between DPS and
MPS of the bank. Where as HBL, EBL and NIBL have negative relation between
MPS and DPS. The regression relation between MPS and EPS of SCBNL and NABIL
indicate that with an increase of Rs. 1 in DPS, the MPS will increase by Rs. 40.05 and
Rs. 13.87 respectively, other variables remaining constant. In contrast there will be
decrease in MPS of HBL, EBL and NIBL by Rs. 50.35, Rs. 65.46 and Rs. 11.52
respectively with an increase in DPS by Rs.1 assuming that the other variables are
constant.

The coefficient of multiple determination (R2) is lowest for NABIL (0.35), which
indicates that only 35% variance in the MPS is explained by DPS i.e. 35% variation in
MPS of the bank is explained due to the change in value of DPS of the bank. This
value is highest in case of HBL (0.86). This indicates that 85% in variation in MPS of
HBL is explained due to change in DPS of the bank. The value of R2 of SCBNL, EBL
and NIBL are 0.79, 0.56 and 0.53 respectively, which indicate that 79%, 56% and
53% variation in the MPS of these banks are explained due to the change in DPS of
the respective banks.

71
4.2.2.3. MPS on DP

MPS = a + b × DP

Table 4.18: Regression Analysis of MPS on DP

Bank Variables B Std T value Sig. T R2

Error
Constant (a) -2087.94 - -1.97 0.144
SCBNL 0.79
DP 40.05 11.95 3.35 0.044
Constant (a) 1349.75 - 7.57 0.005
HBL 0.86
DP -50.350 11.89 -4.24 0.024
Constant (a) 420.61 - 0.97 0.403
NABIL 0.35
DP 13.87 10.80 1.28 0.289
Constant (a) 1281.00 - 3.69 0.035
EBL 0.56
DP -65.46 33.69 -1.94 0.147
Constant (a) 1295.57 - 5.67 0.011
NIBL 0.53
DP -11.52 6.33 -1.82 0.166

Since the paid up price per share is Rs. 100, the numerical value of DPS and DP
comes to be equal. This justifies that same type of regression relation between MPS
and DP can be seen which is analyzed in case of regression between MPS and DPS.
Further same type of coefficient of multiple determination can be seen in case of
regression relation between MPS and DP as in case of MPS and DPS.

4.2.2.4. MPS on DPR

MPS = a + b × DPR
Table 4.19: Regression Analysis of MPS on DPR

Bank Variables B Std T value Sig. T R2

Error
Constant (a) -466.05 - -1.19 0.319
SCBNL 0.82
DPR 20.10 5.49 3.66 0.035
Constant (a) 1270.46 - 4.88 0.016
HBL 0.69
DPR 14.27 5.58 -2.56 0.083
Constant (a) 541.40 - 1.01 0.385
NABIL 0.16
DPR 6.65 8.70 0.76 0.501
Constant (a) 1364.90 - 11.69 0.001
EBL 0.94
DPR -32.02 4.62 -6.94 0.006
Constant (a) 1212.56 - 4.28 0.023
NIBL 0.29
DPR -5.34 4.77 -1.12 0.344

72
The regression analysis between MPS and DPR shows positive relation between MPS
and DPR of SCBNL, HBL and NABIL while negative relation between MPS and
DPR of EBL and NIBL. The regression relation between MPS and DPR of SCBNL,
HBL and NABIL indicates that with an increase of 1% in DPR, the MPS will increase
by Rs. 20.10, Rs. 14.27 and Rs. 6.65 respectively assuming that the other variables are
constant. In the other hand with an increase in 1% in DPR, the MPS of EBL and NIBL
will decrease by Rs. 32.02 and Rs. 5.34 other variables remaining constant.

The standard error of estimate of SCBNL, HBL, NABIL, EBL and NIBL are 5.49,
5.58, 8.70, 4.62 and 4.77, which indicate the possible error in the predicted value for
the respective banks.

4.2.2.5. MPS on DY

MPS = a + b × DY

Table 4.20: Regression Analysis of MPS on DY

Bank Variables B Std T value Sig. T R2

Error
Constant (a) 3530.48 - 10.15 0.002
SCBNL 0.93
DY 312.77 50.47 -6.20 0.008
Constant (a) 1230.84 - 5.49 0.012
HBL 0.73
DY -193.23 67.84 -2.85 0.065
Constant (a) 1050.08 - 2.23 0.112
NABIL 0.04
DY -34.77 95.04 -0.37 0.739
Constant (a) 1279.73 - 8.24 0.004
EBL 0.88
DY -196.58 41.57 -4.73 0.018
Constant (a) 1276.01 - 8.81 0.003
NIBL 0.74
DY -81.51 27.95 -2.92 0.062

The table 4.20 of regression analysis shows that among the banks under study, all
banks except SCBNL have negative regression relation between MPS and DY. The
regression relation between MPS and DY of SCBNL indicates that with an increase of
1% in DY, the MPS will increase by Rs. 312.77 other variables remaining constant. In
contrast there will be decline in MPS of HBL, NABIL, EBL and NIBL by Rs. 193.23,
Rs. 34.77, Rs. 196.58 and Rs. 81.51 respectively with an increase in DY by 1%
assuming that other variables are constant.

73
The standard error of estimate of SCBNL, HBL, NABIL, EBL and NIBL are 50.47,
67.84, 95.04, 41.57 and 27.95 respectively. These values indicate the probable error in
the predicted value for the respective banks.

4.2.2.6. DPS on EPS

DPS = a + b × EPS

Table 4.21: Regression Analysis of DPS on EPS

Bank Variables B Std T value Sig. T R2

Error
Constant (a) 84.17 - 1.94 0.147
SCBNL 0.003
EPS 0.03 0.33 0.09 0.934
Constant (a) 0.29 - 0.07 0.948
HBL 0.80
EPS 0.42 0.12 3.51 0.039
Constant (a) 3.64 - 0.07 0.951
NABIL 0.10
EPS 0.48 0.83 0.58 0.601
Constant (a) 14.97 - 2.32 0.103
EBL 0.29
EPS -0.096 0.09 -1.12 0.346
Constant (a) -2.53 - -0.15 0.888
NIBL 0.62
EPS 0.57 0.26 2.22 0.113

The regression analysis between DPS and EPS shows a positive relation between DPS
and EPS among all banks except EBL. The regression relation between DPS and EPS
of EBL indicates that with an increase of Rs. 1 in EPS, the DPS will decrease by Rs.
0.096 assuming that other variables held constant. In the other hand, there will be
increase in DPS of SCBNL, HBL, NABIL and NIBL by Rs. 0.03, Rs. 0.42, Rs. 0.48
and Rs. 0.57 respectively with an increase in EPS by Rs. 1 remaining other variables
constant.

The standard error of estimate of SCBNL, HBL, NABIL, EBL and NIBL are 0.33,
0.12, 0.83, 0.09 and 0.26 respectively. These values indicate the possible error in the
predicted value for the respective banks.

74
4.2.2.7. DPS on NWPS
DPS = a + b × NWPS
Table 4.22: Regression Analysis of DPS on NWPS
Bank Variables B Std T value Sig. T R2
Error
Constant (a) 101.13 - 3.95 0.029
SCBNL 0.09
NWPS -0.035 0.065 -0.53 0.633
Constant (a) -19.22 - -0.61 0.587
HBL 0.26
NWPS 0.18 0.17 1.02 0.381
Constant (a) 113.62 - 1.57 0.215
NABIL 0.28
NWPS -0.31 0.29 -1.09 0.354
Constant (a) 15.50 - 2.30 0.105
EBL 0.30
NWPS -0.035 0.03 -1.14 0.337
Constant (a) 171.13 - 1.12 0.342
NIBL 0.22
NWPS -0.51 0.55 -0.92 0.424

The table 4.22 show that regression analysis shows that among the banks under study,
all banks except HBL has negative regression relation between DPS and NWPS. The
regression relation between DPS and NWPS of HBL indicates that with an increase of
Rs. 1 in NWPS, the DPS will increase by Rs. 0.18 assuming that other variables are
constant. In contrast, with an increase of Rs. 1 in NWPS of SCBNL, NABIL, EBL and
NIBL, the DPS will decline by Rs. 0.035, Rs. 0.31, Rs. 0.035 and Rs. 0.51
respectively remaining the other variables constant..
The standard error of estimate of SCBNL, HBL, NABIL, EBL and NIBL are 0.065,
0.17, 0.29, 0.03 and 0.55 respectively. These values indicate the probable error in the
predicted value for the respective banks.
The coefficient of multiple determinations (R2) is highest for EBL (0.30), which
indicates that 30% in DPS is explained by NWPS i.e. 30% variation in DPS of the
bank is explained due to the change in value of NWPS of the bank. The value of R 2 of
SCBNL, HBL, NABIL and NIBL are 0.09, 0.26, 0.28 and 0.22 respectively, which
indicate that 9%, 26%, 28% and 22% variation in the DPS of these banks are
explained due to the change in NWPS of the respective banks.

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4.2.2.8. MPS on EPS and DPR
MPS = a + b1 × EPS + b2 × DPR

Table 4.23: Regression Analysis of MPS on EPS and DPR

Bank Variables B Std T value Sig. T R2
Error
Constant (a) -3794.13 - -1.78 0.217
SCBNL EPS 14.23 9.79 1.45 0.283 0.86
DPR 48.65 14.93 3.26 0.083
Constant (a) 1624.93 - 54.09 0.000
HBL EPS -14.62 0.77 -19.07 0.003 0.99
DPR -12.11 0.52 -23.39 0.002
Constant (a) -753.08 - -0.55 0.640
NABIL EPS 19.09 18.75 1.02 0.416 0.45
DPR 7.76 8.72 0.89 0.468
Constant (a) 1082.04 - 0.86 0.479
EBL EPS 2.61 11.48 0.23 0.841 0.94
DPR -26.64 24.33 -1.09 0.388
Constant (a) 1458.55 - 3.30 0.081
NIBL EPS -4.71 6.11 -0.77 0.521 0.46
DPR -4.78 5.17 -0.92 0.453

The table 4.23 show of multiple regression analysis shows that among the banks under
study, SCBNL and NABIL have positive relation between MPS on EPS and DPR.
HBL and NIBL have negative relation between MPS on EPS and DPR. In case of
EBL, there is positive relation between MPS and EPS and negative relation between
MPS and DPR. The regression relation between MPS on EPS and DPR of SCBNL
and NABIL indicates that with an increase of Rs. 1 in EPS, MPS will increase by Rs.
14.23 and Rs. 19.09 whereas with increase of 1% in DPR, the MPS will increase by
Rs. 48.65 and Rs. 7.76 respectively remaining variables other than two constant. In
case of HBL and NIBL, with an increase of Rs. 1 in EPS, the MPS will decline by Rs.
14.62 and Rs. 4.71 respectively and the MPS will decline by Rs.12.11 and Rs. 4.78
respectively, with increase in 1% in DPR assuming that the other remaining variables
constant. For EBL, the MPS will increase by Rs. 2.61 with increase in EPS by Rs. 1
and it will decline by Rs.26.64 with the increase in 1% of DPR.

76
The average standard error of estimate of SCBNL, HBL, NABIL, EBL and NIBL are
12.36, 0.65, 13.74, 17.91 and 5.64 respectively. These values indicate the probable
error in the predicted value for the respective banks.

The value of coefficient of multiple determination (R2) of SCBNL, HBL, NABIL,

EBL and NIBL are 0.86, 0.99, 0.45, 0.94 and 0.46 respectively, which indicate that
86%, 99%, 45%, 94% and 46% variation in the MPS of these banks are explained due
to the change in EPS and DPR of the respective banks.

4.2.2.9. MPS on P/E Ratio and DPS

MPS = a + b1×PER + b2×DPS

Table 4.24: Regression Analysis of MPS on P/E Ratio and DPS

Bank Variables b Std T value Sig. T R2

Error
Constant (a) -824.36 - -1.50 0.272
SCBNL PER 76.51 19.62 3.90 0.060 0.97
DPS 15.62 8.01 1.95 0.190
Constant (a) 365.63 - 1.25 0.337
HBL PER 6.50 1.85 3.51 0.072 0.98
DPS 0.71 15.51 0.05 0.968
Constant (a) -51.50 - -0.18 0.874
NABIL PER 57.62 20.11 2.87 0.103 0.87
DPS 4.51 6.70 0.67 0.571
Constant (a) -337.46 - -0.22 0.848
EBL PER 120.84 113.42 1.06 0.398 0.72
DPS -11.78 60.20 -0.19 0.863
Constant (a) 138.39 - 0.07 0.948
NIBL PER 30.94 49.99 0.62 0.599 0.60
DPS 5.68 28.68 0.20 0.861

The multiple regression analysis among MPS on PER and DPS shows that all banks
except EBL have positive multiple regression relation while EBL have positive
relation with PER and negative relation with DPS other remaining variables constant.
The regression relation between MPS on PER and DPS of SCBNL, HBL, NABIL and
NIBL indicates that with an increase of 1% in PER the MPS will increase by Rs.

77
76.51, Rs. 6.50, Rs. 57.62 and Rs. 30.94 and with increase of Rs. 1 in DPS, the MPS
will increase by Rs. 15.62, Rs. 0.71, Rs. 4.51 and Rs. 5.68 respectively remaining
other than two variables constant. In case of EBL, with an increase of 1% in PER, the
MPS will increase by Rs. 120.84 but it will decrease by Rs. 11.78 with an increase of
Rs. 1 in DPS.

The value of coefficient of multiple determination (R2) of SCBNL, HBL, NABIL,

EBL and NIBL are 0.97, 0.98, 0.87, 0.72 and 0.60 respectively, which indicate that
97%, 98%, 87%, 72% and 60% variation in the MPS of these banks are explained due
to the change in PER and DPS of the respective banks.

4.3 Major Findings

A. Findings of Descriptive Analysis
 From the descriptive analysis, the researcher found there is not any consistency
in dividend policy in the sample firms. It has indicated the need of dividend
strategy as well as the need of proper analysis of the respective sector of the
firms.
 Most of the Nepalese firm from the very past have not profit planning and
investment strategy, which has imbalanced the whole position of the firms. It
means there is not consistency even in the earnings.
 Besides all the D/P Ratio of the firms in many years are found more than the
popular practice (i.e. 40%)
 The lack of financial knowledge and the market inefficiency has affected the
market price of the share in all the firms. But it is theoretically argued.

 Capital increasing rate are higher than that of NABIL and UICNL respectively
in their respective sectors.

 The relationship between MPS and DPS of NABIL shows the coefficient of
determination (R2) is 0.1627, which indicates that only 16.27 percent of the
variation of MPS is determined by the explanatory variable DPS. The simple
correlation coefficient ( R ) between MPS and DPS of NABIL is 0.4033.

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 The relationship between EPS and DPS of NABIL as the results show, the
slope of coefficient is 4.6. Only 6.04% of the variation of DPS is determined
by the explanatory variable EPS. The simple correlation coefficient R between
DPS and EPS of NABIL is 0.245.
 The relationship between EPS and MPS of HBL as these result shows, the
slope of coefficient is 14.208. The coefficient of determination R2 is 0.9754,
which indicates that only 97.54% of the variation of MPS is determined by the
explanatory variable EPS. The simple correlation coefficient R between MPS
and EPS of HBL is .9876.
 The relationship between MPS and DPS of HGICL. As the result show the
slope of coefficient ( b ) is -0.03818. The coefficient of determination ( R2) is
0.0207, which indicates that only 2.07 percent of the variation of MPS is
determined by the explanatory variable DPS. The simple correlation
coefficient ( R ) between MPS and DPS of HGICL is -0.1441.
 The relationship between EPS and DPS of HGICL as the results show, the
slope of coefficient is -0.7411. The coefficient of determination R2 is 0.4181,
which indicates that;41.81% the variation of DPS is determined by the
explanatory variable EPS. The simple correlation coefficient ( R ) between
DPS and EPS of HGICL is -0.6466

79
 CHAPTER-V

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary

Dividend policy decision is one of the three major decisions of financial management.
The dividend policy decision affects on the operation and prosperity of the
organization because it has the power to influence other two decisions of the
organization i.e. capital structure decision and investment decision. An investor
expects two types of return namely capital gain and dividend by investing in equity
capital or ordinary share. So, payment of dividend to shareholders is an effective way
to attract new investors and maintain present investors. It is important to have clearly
defined and effectively managed dividend policy so as to fulfill the shareholders'
expectations and corporate growth.

In Nepal, only a few listed companies are paying regular dividends to their
shareholders. These companies are also not following the stable dividend payout
policy. However, paying dividend can be taken as an important tool to attract new
investors. Besides this, the payment of dividend shows the good financial health of the
organization in the market. The division of earnings between dividend payout and
retention ratio the market price of the share may also be affected, which is also crucial
for the organization. So, the funds that could not be used due to the lack of investment
opportunities would be better as dividend, since shareholders have investment
opportunities elsewhere.

Dividend paying banks have been analyzed to show the implication of dividend policy
they have adopted in their market price per share. Even if market price is governed by
various factors, this study is made to analyze one of the important factor i.e. Dividend.
The study covers five joint venture commercial banks (NABIL, SCBNL, NIBL, HBL
and EBL) and only for the last five fiscal years from 2002/03 to 2006/07. The
available secondary data have been analyzed using various financial and statistical
tools. So, the reliability of the conclusions of this study is determined on the accuracy
of secondary data. The shareholders in Nepal don't seem to be investing their capital

80
on the basis of financial performances of the financial institution as such. The main
reason behind this statement is that market price of the shares don't seem to be more or
less dependent upon earnings per share and dividend per share. The major findings of
this study can be summarized as follows.

5.2 Conclusions

From the analysis of financial variables using statistical tools mean, standard deviation
and coefficient of variation, following conclusions have been drawn.

 The average earning per share (EPS) of the banks under study shows a positive
result. But the coefficient of variation indicates that the EPS of the banks are
not stable. The CV ranges between 59.04% and 17.57%. Among the banks
under study, SCBNL has the highest average EPS and HBL has the least with
highest degree of fluctuation.

 The average DPS shows that there is no regularity in payment of dividend. The
DPS is quite fluctuating. The CV of DPS ranges between 76.70% and 14.82%.
The SCBNL has the highest average DPS and the most regular to pay dividend
to its shareholders. Among the banks under study, EBL has the lowest average
DPS and also the highest fluctuation in DPS. Since the paid up capital per
share is Rs.100, the analysis of dividend percent also depicts the same result as
that of DPS.

 The analysis of DPR also shows that the DPR of the banks are not stable. The
fluctuation ranges between 86.62% and 21.22%. Among the banks under
study, SCBNL has the highest average DPR and least fluctuation in the DPR.
The result also shows that, EBL has the lowest average DPR but highest
fluctuation as indicated by highest CV.

 The average MPS of the banks indicate quite high level of fluctuation. SCBNL
has the highest average MPS while HBL has the lowest. Among the banks
under study, the MPS of EBL is highly fluctuating and that of NIBL is the
most stable.

81
  The average price-earning ratio of HBL among the banks under study is the
highest and also highly unstable. The ratio for remaining banks is satisfactory
and quite stable.

 The average earning yield of banks under study indicates that the earning yield
is quite low ranging between 11.87% and 6.15% and the stability of the
earning yield is also low i.e. fluctuation of earning yield range from 72.67% to
43.41%.

 The average dividend yields of the banks are also very low ranging between
6.70% and 2.77%. Among the banks SCBNL has the highest dividend yield
and HBL has the lowest. Besides the dividend yield being low, there is high
fluctuation in the dividend ranging from 96.69% to 27.03%.

 The average ratio between market price per share and book value per share is
nearly similar ranging between 3.88 and 3.16 but the fluctuation in this ratio
range between 71.80% and 33.38%.

 The analysis of net worth per share shows that SCBNL has the highest average
NWPS and HBL is the lowest. The coefficient of variation indicates that there
is a moderate level of fluctuation in NWPS of the banks under study.

Upon using the major statistical tools i.e. correlation and regression, following
conclusion have been drawn

 The MPS of NABIL has positive correlation with DPS (0.595), DP (0.595),
DPR (0.404), EPS (0.480), P/E Ratio (0.919) and MPS to BVPS ratio (0.984).
On the other hand it is negatively correlated with EY (-0.928) and DY (-
0.207). The EPS of NABIL has positive correlation with DPS (0.319) but
negative relation with DPR (-0.125). The DPS is positively correlated with
DPR (0.900) but negative with NWPS (-0.534). The EY of NABIL is
positively correlated with its DY (i.e. -0.106).

 The MPS of SCBNL has positive correlation with its DPS (0.888), DPR
(0.841), DP (0.888), P/E Ratio (0.964), MPS to BVPS ratio (0.918) and NWPS
(0.600). But it is negatively correlated with its EPS (-0.318), EY (-0.900) and

82
 DY (-0.963). On the other hand EPS of SCBNL is positively correlated with its
DPS (i.e.0.052) but negative correlation with DPR (i.e.-0.706). The DPS has
positive correlation with DPR (i.e.0.667) but negative correlation with NWPS
(i.e.-0.292). Also the EY of SCBNL positively correlated with its DY
(i.e.0.976).

 For NIBL, the MPS has negative correlation with its DPS (-0.725), DP (-
0.725), DPR (-0.543), DY (-0.860), EPS (-0.474) and EY (-0.751). But it’s
MPS positively correlated with P/E Ratio (0.770), MPS to BVPS ratio (0.960)
and NWPS (0.798). There exists positive correlation between EPS-DPS (i.e.
0.788) and EPS-DPR (i.e. 0.140). The DPS of NIBL is positively correlated
with DPR (0.697) but there is negative correlation between DPS and NWPS (-
0.470). There is also positive correlation exists between EY and DY (i.e.
0.907).

 In case of HBL, the MPS is negatively correlated with DPS (0.926), DP (-

0.926), DPR (-0.828), DY (-0.854), EPS (-0.727) and EY (-0.772) while it
has positive correlation with its P/E Ratio (0.990), MPS to BVPS ratio (0.986)
and NWPS (0.362). The EPS of HBL is positively correlated with its DPS
(0.897) and DPR (0.219). The DPS has positive correlation with DPR (0.584)
and NWPS (0.509). There exists positive correlation between EY and DY of
HBL (i.e. 0.945).

 The regression analysis of MPS on DPS shows that the regression coefficient
(b) is positive for SCBNL and NABIL and negative for HBL, EBL and NIBL.
In the same way similar type of relation exist between MPS on DP of these
banks.

 The regression coefficient (b) of the regression analysis between MPS on DPR
is positive for SCBNL, HBL and NABIL. This regression coefficient (b) for
relation between MPS on DPR is negative for EBL and NIBL.

83
  The regression analysis between MPS on DY shows that the regression
coefficient (b) is positive for SCBNL only. All the other banks (HBL, NABIL,
EBL and NIBL) have negative regression coefficient.

 The regression coefficient (b) for the analysis between DPS on EPS is positive
for SCBNL, HBL, NABIL and NIBL while it is negative for NIBL.

 The regression analysis on DPS on NWPS indicates that the regression

coefficient (b) is positive for HBL only. The regression coefficient is negative
for SCBNL, NABIL, EBL and NIBL.

 The multiple regression analysis of MPS on P/E Ratio and DPS shows that the
regression coefficient (b) is positive for both P/E Ratio and DPS in case of
SCBNL, HBL, NABIL and NIBL. But for EBL, the regression coefficient (b)
is positive for P/E Ratio and negative for DPS.

After analyzing the financial variables using mean, standard deviation and coefficient
of variation, making analysis of relation between the variables using correlation and
regression, the following conclusions have been drawn.

 The market price per share is affected by the dividend related financial
variables i.e. DPS, DP and DPR either positively or negatively. The nature of
effect is different for different banks. In case of some banks, there exists
positive relation between dividend and market price per share while for other
there exist negative relation. Besides this the market price per share largely
depends upon the dividend, which has been shown by the coefficient of
multiple determinations.

 Besides dividend, other factors also affect the market price per share e.g.
earning per share, price earning ratio, net worth per share etc. Their effect is
also different for different banks.

 The dividend per share is affected by earning per share, retention ratio, net
profit and net worth per share differently in different banks. The extent of
effect also differs in the banks.

84
  The MPS to BVPS ratio is greater than 1 for all banks in all FY under study.
This indicates that the investors are not looking at BVPS but only at the
transaction price of the shares. This indicates lack of consciousness and
knowledge in shareholders. This has created a gap between MPS and BVPS.

 There is lack of legal obligation that abides the companies to pay dividend
when they are running at profit. There is not clear provision in Company Act
2053, Commercial Bank Act 2031 and other regulating acts regarding the
dividend policy.

5.3 Recommendations

As the result of the study representing about more than 1/4 th of the banking industry of
Nepal and covering some of the most successful commercial banks as on date, some
recommendations have been made so as to overcome some shortfalls regarding the
issue of dividend of the banking sector of the country.

 Lack of proper legal provisions regarding the dividend payment exits in the
country. The government as well as the central bank of Nepal, Nepal Rastra
Bank should pay their attention in this matter for prescribing certain provisions
and rules regarding the percentage of earning which can be distributed be as
payment of dividend to its shareholders. This recommendation is suggested on
the basis moderns banking environment and changing expectation of the stake
holders/ investors of the banks.

 The commercial banks also should have their long-term policy / strategy
regarding the adoption of suitable dividend policy i.e. either it is adopting a
stable dividend policy, constant payout ratio or low regular plus extra dividend
policy. This recommendation is based on the requirement of long term growth
of banking industry in Nepal.

 There is inconsistency in dividend payment. The dividend is neither static nor

growing. This may create misconception about the organization regarding its
financial position. Due to high degree of risk and uncertainty, the market price

85
 per share may be adversely affected. So the commercial banks should follow
either static or growing dividend payment policy based on its earning capacity.

 Even if the net earning has been increasing, the dividend per share has widely
fluctuated due to the issue of bonus shares. The impact of bonus share on DPS
should be pre-evaluated. The shareholders should also be informed about the
reasons of fluctuation in dividend.

 While making dividend decision, a minor mistake may lead the bank to serious
crisis. Due to this reason it is advised to adopt optimum dividend decision
based on the following criteria:

 Optimum retention for excellent expansion and modernization of bank

keeping in view with expected risk scenario.

 Optimum dividend as most of the shareholders wants to have maximum

return as well as to increase their wealth through increase in market price
per share i.e. net present value of shareholders.

 Stable or consistency in the dividend payment.

Finally, after making this study, it is realized that there is a necessity of legal
provisions and rules for prescribing certain policy regarding the dividend payment in
the banking sector. For this purpose the concerned authority i.e. HMG (N), Nepal
Rastra Bank, Security Board and Nepal Stock Exchange should be conscious about the
formulation and implication of rule regarding dividend payment. This will help to
regularize the dividend policy of the financial sector in Nepal.

86
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Nepal.The Nepalese Management Review. Vol. IX No. 1.

Pradhan, S. (1992).Dividend Payment, Kathmandu: Educational Enterprises Pvt. Ltd.

Sinkey, J.F.(1988). Commercial Banks and Financial Management in

Financialindustry. New York : McMillan Inc.

Security Board of Nepal.(2006) Annual Report Kathmandu

Sharma, B. (2001). Corporate financial management.Bhotahiti, Kathmandu:

TalejuPrakashan.

Sharma, P.K. & A.K. Chaudhary.(2001). Statistical Methods. Kathmandu: Khanal

Books prakashan.

Shrestha, M.K. (1980). Financial management (Theory and Practice). T.U.

Kathmandu: Kathmandu curriculum development center.

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Shrestha, M.K. (1981). Public Enterprises: Have they Divdiend paying Ability
?Prakashan, The Nepalese journal of public Administration.
Timilsina, B.S. (2001). Dividend policy: A comparative study between NGBLand
NIBL, Kathmandu: An un published Manster degree thesis, T.U. Kathmandu.

Van Horne, J. C. (2000). Financial Management and Policy. New Delhi: Prentice
Hall.

Walter, J.E. (1996). Dividend policies and common stock prices.Journal of Finance,
Vol.11.

Wolf Howard, K & Pant.P.R (2009) Social Science Research and Thesis writing.
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Websites:
www.nepalstock.com
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www.stockalpha.com

89
 APPENDIX-I

Analysis of EPS
Year NABIL (X) X2 HBL (X1) X12
2017/13 103.45 10701.9 24.01 576.48
2016/12 92.61 8576.61 0 0
2015/11 84.66 7167.32 2.67 7.13
2014/10 55.25 2052.56 41.39 1713.13
2013/09 59.25 3511.75 29.39 863.77
∑395.23 ∑33010.14 ∑97.46 ∑3160.51

Year UICNL (X2) X22 HGICL (X3) X32

2017/13 16.86 284.26 36.70 1346.89
2016/12 12.38 153.26 39.87 1589.62
2015/11 5.97 35.64 38.40 1474.56
2014/10 5.97 35.64 38.41 1475.33
2013/09 15.69 246.18 25.5 650.3
∑56.87 ∑754.98 ∑178.88 ∑6536.7

∑𝑿 𝑺.𝑫.
𝑿= 𝒄𝒗 = × 𝟏𝟎𝟎
𝒏 𝑿

∑𝑋 2 ∑𝑋
C.V. = √ − ( 𝑛 )2
𝑛

NABIL HBL UICNL HGIC

Mean 79.04 60.04 Mean 11.37 35.77
S.D. 18.83 17.34 S.D. 4.65 5.24
C.V. 23.83 28.88 C.V. 40.86 14.63

90
Similarly
Analysis DPS
NABIL HBL HGIC UICNL
Mean 51 13.06 Mean 7 5.6
S.D. 14.97 11.51 S.D. 6 4.63
C.V. 29.37 88.07 C.V. 85.71 82.68

Analysis of MPS
NABIL HBL HGIC UICNL
Mean 1089 1019.2 Mean 164.8 112.2
S.D. 352.99 247.81 S.D. 85.22 62.62
C.V. 32.41 24.31 C.V. 51.71 55.81

91
 APPENDIX – II

1. Simple Correlation and the Regression result between MPS and DPS of NABIL.
Year X Y X2 XY Y2
2017/16 70 1505 4900 105350 2265025
2016/15 65 1000 4225 65000 1000000
2015/14 50 740 2500 37000 547600
2014/13 30 700 900 21000 490000
2013/12 40 1500 1600 60000 2250000

A = 5 ∑X = 225, ∑Y = 5445, ∑XY = 288350, ∑X2 = 14125, ∑Y2= 6552625

Note:
Value of X represents market price per share: MPS
Value of Y represents dividend price per share: DPS
Mean,
𝑋 = 51
𝑌 = 1089

𝑛.∑𝑋𝑌−∑𝑋 .∑𝑌
i) Coefficient of Correlation, r =
√𝑁.∑𝑋 2− (∑𝑋)2 ×√𝑛.∑𝑌 2− (∑𝑌 2

= 0.4033

Coefficients of Determination (r2) = 0.1627

1−𝑟 2
Standard error of Correlation Coefficients, S.E. (r ) =
√𝑛

= 0.3744
ii) Regression Equations of y on x is, y1 = a + bx1
Where,
A = Regression constant
B = regression coefficient (Slope of the regression line)
According to the principles of least squares, two normal equations for estimating two
numerical constants a and b are given by,

92
∑Y = na + b∑X
And
∑XY = a∑X + b∑X2

Solving these two normal equations, we get

𝑛.∑𝑋𝑌−(∑𝑋)(∑𝑌)
B= 𝑛 .∑𝑋 2 − (∑𝑋)2

= 9.51
A = Y-Bx =603.82

∑𝑌 2 −𝑎∑𝑌−𝑏∑𝑋𝑌
Standard error of the estimate (S.Ee) = √ 𝑛−2

= 12.4605
𝑏
T – Value (t) = 𝑆
𝑏

= 0.7632

2. Simple Correlation and the Regression results between EPS and DPS of
NABIL.
Years X Y X2 SY Y2
2017/16 103.45 70 10701.9 7241.5 4900
2016/15 92.61 65 8576.612 6019.65 4225
2015/14 84.66 50 7167.316 4233 2500
2014/13 55.25 30 3052.563 1657.5 900
2013/12 59.26 40 3511.748 2370.4 1600

Note:
Value of X represents earnings price per share: EPS
Value of Y represents dividend price per share: DPS
Mean,
𝑋 = 79.046

93
𝑌 = 51
𝑛 .∑𝑋𝑌−∑𝑋 .∑𝑌
i) Cofficient of Correlation, r =
√𝑛 .∑𝑋 2− (∑𝑋)2×√𝑛 .∑𝑌 2− (∑𝑌)2

= 0.97
Coefficient of determination (r2) = 0.94103
1−𝑟 2
Standard error of correlation Coefficient, S.E. (r ) =
√𝑛

= 0.02637
ii) Regression Equations of y on x is, y2 = a + bx2
Where,
A = Regression constant
B = Regression coefficient (Slope of the regression line)
According to the principle of least squares, two normal equations for estimating two
numerical constants a and b are given by,
∑Y = na + b∑X
And
∑XY = a∑X + b∑X2
Solving these two normal equations, we get,
𝑛 .∑𝑋𝑌−(∑𝑋)(∑𝑌)
B= 𝑛 .∑𝑋 2 − (∑𝑋)2

= 0.77214

A = 𝑌 − 𝑏𝑋 = -10.0311
∑𝑌 2 −𝑎∑𝑌−𝑏∑𝑋𝑌
Standard error of the estimate (S.Ee) = 𝑛−2

= 4.69172
𝑆.𝐸𝑒
Standard error of Regression Coefficient (Sb) =
√∑(𝑋−𝑋)2

= 0.11156
𝑏
T-Value 9t) = 𝑆
𝑏

= 6.92153

94
 3. Simple Correlation and the Regression result between EPS and MPS of
NABIL.
Years X Y X2 XY Y2
2017/16 103.45 1505 10701.9 155692.3 2265025
2016/15 92.61 1000 8576.612 92610 1000000
2015/14 84.66 740 7167.316 62648.4 547600
2014/13 55.25 700 3052.563 38675 490000
2013/12 59.26 1500 3511.748 88890 2250000

N = 5∑X = 395.21, ∑Y = 5445, ∑XY= 438515.7 ∑X2 = 33010.14, ∑Y2 = 6552625

Note:
Value of X represents earnings price per share: EPS
Value of Y represents market price per share: MPS
Mean,
𝑋 = 79.046
𝑌 = 1089
𝑛.∑𝑋𝑌− ∑𝑋 .∑𝑌
i) Coefficient of Correlation, r =
√𝑛 .∑ 𝑋 2 − (∑𝑋)2 × √𝑛.∑𝑌 2 − (∑𝑌)2

Coefficient of determination (r2) = 0.6004

1− 𝑟 2
Standard error of Correlation coefficient, (S.E. (r ) =
√𝑛

= 0.1787
ii) Regression Equations of y on x is, y3 = a+bx3
Where,
A = Regression constant
B = Regression coefficient (Slope of the Regression line)

According to the principle of least squares, two normal equations for estimating two
numerical constants a and b are given by,
∑Y = na + b∑X
95
And
∑XY = a∑X +b∑X2

Solving these two normal equations, we get,

𝑛.∑𝑋𝑌−(∑𝑋)(∑𝑌)
B= 𝑛.∑𝑋 2 − (∑𝑋)2

= 4.6
A = 𝑋 − 𝑏 𝑌 = 725.4
∑𝑌 2 − 𝑎∑𝑌−𝑏 ∑𝑋𝑌
Standard error of the estimate (S.Ee) = √ 𝑛−2

= 441.819
𝑆.𝐸𝑒
Standard error of Regression coefficient (Sb) =
√∑(𝑋− 𝑋)2

= 10.5053
𝑏
T-Value (t) = 𝑆
𝑏

= 0.4378

4. Simple Correlation and the regression results between MPS and DPS of HBL
a = 5 ∑X = 5096, ∑Y = 65.32, ∑XY = 77933.5, ∑X2 = 5500896, ∑Y2 = 1515.24
𝑋 = 1019.2 Coefficient of correlation (r ) = 0.7968
𝑌 = 13.064 Coefficient of determination (r2) = 0.6349
A = 24.64 b = 0.03699
Standard error of Regression coefficient (Sb) = 0.01621
T-Value (t) = 2.284

5. Simple Correlation and the Regression results between EPS and MPS of HBL n =
5∑X = 299.93, ∑Y = 5096, ∑XY = 326769, ∑X2 = 19475.3, ∑Y2 = 5500896
𝑋 = 59.986 Coefficient of correlation (r ) = 0.99876
𝑌= 1019.2 Coefficient of Determination ( r2) = 0.9754
a = 166.92 b = 14.208
Standard error of Regression coefficient (Sb) = 1.30134

96
T-Value (t) = 10.9135

6. Simple correlation and the regression results between EPS and DPS of HBL n = 5,
∑X = 299.93, ∑Y = 65.32, ∑XY = 4687.39, ∑X2 = 19475.3, ∑Y2 = 1515.24
𝑋 = 59.986 Coefficient of correlation (r ) = 0.99876
𝑌= 13.064 Coefficient of Determination ( r2) = 0.9754
a = 18.031 b = 0.51837
Standard error of Regression coefficient (Sb) = 0.24318
T-Value (t) = 2.1316

7. Simple Correlation and the regression results between MPS and DPS of HGIC n =
5, ∑X = 1014, ∑Y = 35, ∑XY = 7000, ∑X2 = 208206, ∑Y2 = 425
𝑋 = 202.8 Coefficient of correlation (r ) = 0.14418
𝑌= 7 Coefficient of Determination ( r2) = 0.02079
a = 14.74 b = 0.03818
Standard error of Regression coefficient (Sb) = 0.15134
T-Value (t) = 0.2536

8. Simple correlation and the regression results between EPS and DPS OF HGIC n =
5, ∑X = 178.88, ∑Y = 35, ∑XY = 1150.6, ∑X2 = 6536.65, ∑Y2 = 425
𝑋 = 35.776 Coefficient of correlation (r ) = 0.6466
𝑌= 7 Coefficient of Determination ( r2) = 0.41815
a = 33.51 b = -0.7411
Standard error of Regression coefficient (Sb) = 0.50504
T-Value (t) = 1.4683

9. Simple correlation and the regression results between EPS and MPS of HGIC n =
5, ∑X = 178.88, ∑Y = 1014, ∑XY = 36348.3, ∑X2 = 6536.65, ∑Y2 = 2082.6
𝑋 = 35.776 Coefficient of correlation (r ) = 0.12045
𝑌= 202.8 Coefficient of Determination ( r2) = 0.01451
a = 184.15 b = 0.5213

97
Standard error of Regression coefficient (Sb) = 2.48053
T-Value (t) = 0.21015

10. Simple correlation and the regression results between MPS and DPS of UICNL n
= 5, ∑X = 699, ∑Y = 28, ∑XY = 4284, ∑X2 = 101597, ∑Y2 = 264
𝑋 = 139.8 Coefficient of correlation (r ) = 0.57332
𝑌= 5.6 Coefficient of Determination ( r2) = 0.3287
a = 7.728 b = 0.0953
Standard error of Regression coefficient (Sb) = 0.07875
T-Value (t) = 1.121199

11. Simple correlation and the regression results between EPS and MPS of UICNL n =
5, ∑X = 699, ∑Y = 56.87, ∑XY = 7581.36, ∑X2 = 101597, ∑Y2 = 754.982
𝑋 = 139.8 Coefficient of correlation (r ) = 0.57
𝑌= 11.374 Coefficient of Determination ( r2) = 0.32489
a = 24.6828 b = 0.0952
Standard error of Regression coefficient (Sb) = 0.07936
T-Value (t) = 1.20155

12. Simple correlation and the regression results between EPS and DPS of UICNL n =
5, ∑X = 56.87, ∑Y = 28, ∑XY = 353.82, ∑X2 = 754.73, ∑Y2 = 754.264
𝑋 = 11.374 Coefficient of correlation (r ) = 0.32868
𝑌= 5.6 Coefficient of Determination ( r2) = 0.10803
a = 1.8735 b = 0.32763
Standard error of Regression coefficient (Sb) = 0.3331
T-Value (t) = 0.60278

98
 APPENDIX – III

For Multiple Regressions 1:

NABIL
Model Summary
Model R R Square Adjusted R Std. Error of
Square the Estimate
1 0.9886 0.97732 0.93197 4.6871
a. Predictors: (Constant) EPS, LDPS

ANOVA
Model df SS MS F Significance
F
1 Regression 2 946.781067 473.3905 21.54818 0.150591
Residual 1 21.9689327 21.96893
Total 3 968.75
a. Predictors: (Constant), EPS, DPS
b. Dependent Variable: MPS

Coefficients
Coefficients Standard Error t Stat
Intercept - 19.66205326 11.45296092 -1.7167659
X Variable 1 0.778571336 0.16585659 4.6942442
X Variable 2 0.173191667 0.229202375 0.7556277

99
 HBL
Model Summary
Regression Statistics
Multiple R 0.8976105
R Square 0.76756
Adjusted R Square 0.302679
Standard Error 9.659326
Observations 4

ANOVA
df SS MS F Significance F
Regression 2 308.1017 154.0509 1.651089 0.482121
Residual 1 93.30258 93.30258
Total 3 401.4043

Coefficients
Coefficient Standard Error T Stat
Intercept -98.158 64.7654 -1.51559
X Variable 1 2.149899 1.340136 1.604239
X Vaiable 2 -0.25767 0.521369 -0.49421

HGIC
Model Summary
Regression Statistics
Multiple R 0.896854
R Square 0.804348
Adjusted R Square 0.413043
Standard Error 4.423259
Observations 4

100
ANOVA
df SS MS F Significa
nce F
Regression 2 80.43378 40.21739 2.055556 0.442326
Residual 1 19.56522 19.56522
Total 3 100

Coefficients
Coefficients Standard Error T Stat
Intercept 130.0849 100.5555 1.293663
X Variable 1 -3.51967 2.707391 -1.30002
X Variable 2 1.128778 0.557702 2.023982

UICNL
Model Summary
Regression Statistics
Multiple R 0.39402685
R Square 0.15525716
Adjusted R Square -1.5342285
Standard Error 9.19098928
Observations 4

ANOVA
df SS MS F Significance
F
Regression 2 15.52572 7.762858 0.091896 0.919099
Residual 1 84.47428 84.47428
Total 3 100

101
Coefficient
Coefficient Standard Error t Stat
Intercept -10.423372 39.31019 -0.26516
X Variable 1 1.09987455 2.671286 0.41174
X Variable 2 0.9111474 2.701014 0.337335

For Multiple Regression 2.

NABIL
Model Summary
Regression Statistics
Multiple R 0.727029879
R Square 0.528572445
Adjusted R Square 0.05714489
Standard Error 383.2158629
Observations 5

ANOVA
df SS MS F Significance F
Regression 2 329311.2 164655.6 1.121217 0.471428
Residual 2 293708.8 146854.4
Total 4 623020

Coefficients
Coefficients Standard Error T Stat
Intercept 1392.27956 878.0248 1.585695
X Veriable1 66.47066053 47.12912 1.410395
X Veriable2 -46.72321492 37.5025 -1.24587

102
HBL
Model summary
Regression Statistics
Multiple R 0.988999
R Square 0.978119
Adjusted R Square 0.956238
Standard Error 57.95965
Observations 5

ANOVA
Df SS MS F Significance F
Regression 2 300334.2 150167.1 44.70162 0.021881
Residual 2 6718.642 3359.321
Total 4 307052.8

Coefficients
Coefficients Standard Error t Sat
Intercept 201.486 112.9892 1.783231
X Variable 1 1.67464 3.566604 0.469533
X Variable 2 13.25378 2.366304 5.601047

HGIC
Model Summary
Regression Statistics
Multiple R 0.148526
R Square 0.02206
Adjusted R Square -0.95588
Standard Error 35.42722
Observations 5

103
ANOVA
df SS MS F Significance F
Regression 2 56.62366 28.31183 0.022558 0.97794
Residual 2 2510.176 1255.088
Total 4 2566.8
Coefficients
Coefficient Standard Error t Sat
Intercept 198.5684 159.4819 1.245084
X Variable 1 -0.43021 3.461782 -0.12428
X Variable 2 0.202457 3.967542 0.0521028
UICNL
Model Summary
Regression Statistics
Multiple R 0.986423
R Square 0.97303
Adjusted R Square 0.94606
Standard Error 7.230364
Observations 5
ANOVA
df SS MS F Significance F
Regression 2 3772.244 1886.122 36.07858 0.02697
Residual 2 104.5563 52.27817
Total 4 3876.8
Coefficients
Coefficients Standard Error t Sat
Intercept 168.9695 8.656268 19.5199
X Variable 1 5.125513 0.73931 6.93283
X Variable 2 -5.08812 0.736082 -6.91245

104
 APPENDIX – IV

1. Hypothesis test of EPS

NABIL HBL
𝑋1 = 79.04 𝑋2 = 60.04

S1 = 18.83 S2 = 17.34
N1 = 5 N2 = 5

𝑁1 𝑆12 𝑁2 𝑆22 5𝑥 (18.83)2+5𝑥 (17.34)2 3276.22

S2 = 1 1 = = = 409.528
√𝑆 2 ( + ) 5+5−2 8
𝑆1 𝑆2

𝑥1 − 𝑥2 79.04−60.04 19
t= 1 1
= 1 1
= 12.7978 = 1.48451
2
√𝑆 (𝑁 + 𝑁 ) √409.528( + )
1 2 5 5

Calculated t Value = 1.48451

d.f. = 5 + 5 – 2 = 8
Tabulated Value = 2.306

HGIC UICNL
𝑥 = 35.77 𝑥2 = 11.37
S1 = 5.24 S2 = 4.65
N1 = 5 N2 = 5

Calculated Value = 6.9657

Tabulated Value = 2.306

105
 2. Hypothesis test of DPS
NABIL HBL
𝑥1 = 51 𝑥2 = 13.66
S1 = 14.97 S2 = 11.51
N1 = 5 N2 = 5
Calculated Value = 4.0183
Tabulated Value = 2.306

HGIC UICNL
𝑥1 = 7 𝑥2 = 5.6
S1 = 6 S2 = 4.63
N1 = 5 N2 = 5
Calculated Value = 0.3694
Tabulated Value = 2.306

NABIL HBL
𝑥1 = 1089 𝑥2 = 1019.2
S1 = 352.99 S2 = 247.81
N1 = 5 N2 = 5
Calculated Value = 0.3236
Tabulated Value = 2.306

HGIC UICNL
𝑥1 =164.8 𝑥2 = 112.2
S1 = 85.22 S2 = 62.62
N1 = 5 N2 = 5
Calculated Value = 0.3694
Tabulated Value = 2.306

106
 3. Hypothesis test of MPS
NABIL HBL
𝑥1 =1089 𝑥2 = 1019.2
S1 = 352.99 S2 = 247.81
N1 = 5 N2 = 5
Calculated Value = 0.3236
Tabulated Value = 2.306

HGIC UICNL
𝑥1 =164.8 𝑥2 = 112.2
S1 = 85.22 S2 = 62.62
N1 = 5 N2 = 5
Calculated Value = 0.9947
Tabulated Value = 2.306

107