Dividend Policy and its Impact on Share Price

OF
Himalayan Bank Limited, Nepal

By:

Hari Prasad Ghimire

Campus Roll No. xxx
TU Registration No. xxxx
BBS 4th Year
Phone No. 98420xxxx

A PROJECT WORK PROPOSAL

Submitted to:

Management Research Committee

AIMS College, Biratnagar

Faculty of Management

Tribhuvan University

In partial fulfillment of the requirement for the Degree of

BACHELOR OF BUSINESS STUDIES (BBS)

Biratnagar

January 2022
 TABLE OF CONTENTS

CONTENTS PAGE NO.

1. 1 Background of the Study

1.2 Objectives of the Study

1.3 Rational of the Study

1.4 Review of Literature

1.5 Research Methods

1.5.1 Types and scope of research
1.5.2 Sources of Date
1.5.3 Data collection methods
1.5.4 Population and Sampling
1.5.5 Tools and techniques of analysis

1.6 Limitation of the Study

1.7 Organization of the Study

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1. 1 BACKGROUND OF THE STUDY

Dividends are payments made by the company to the common shareholders out of the
earnings. The dividend decision is one of the most important project report writing topics in the
finance area of management studies. This project report to analyze the impact of dividend policy
on the share prices of Himalayan Bank Limited, Nepal.

Dividend, the most inspiring factor for the investment on common stock of the
companies, is an important aspect of financial management. Because the dividend policy
determines the division of earnings between payment to shareholders and reinvestment in the
firm to exploit growth opportunities. It affects the value of firm as well as overall financing
decision such as capital structure, the flow of funds, corporate liquidity, and investors'
satisfaction.
In Nepal, banking activities were started after the establishment of Nepal Bank Limited in
1937. Himalayan Bank Limited is the one of the leading commercial banks in Nepal as joint
venture banks established in. Share of common stocks are listed in Nepal Stock Exchange
(NEPSE) for trading among investors and prospective investors. Price of shares change by the
demand and supply in market as well as dividend policy adopted by the company.

This study will deal with the following issues, which are main problem of this study.

 What is the trend of dividend payment pattern of Himalayan Bank Limited, Nepal?
 What relationship does there exist between Earning Per Share (EPS), Dividend Per Share
(DPS) and Market Price Per Share (MPS) of Himilayan Bank Limite, Nepal?

1.2 OBJECTIVE OF THE STUDY

The main objective of the study is “to analyze the impact of dividend policy on the share price of
Himalayan Bank Limited, Nepal".

The specific objectives of the study are the following:

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  To examine the relationship between net incomes, dividends, retention ratio, return on
equity and market price of share of Himalayan Bank Limited, Nepal.
 To analyze the trends of share price of Himalayan Bank Limited, Nepal during the five
years period of 2013 to 2017.
1.3 RATIONALE OF THE STUDY

In the Nepalese perspective, none of the companies adopting consistent dividend policy. There
may be many reasons behind it. But there is no sufficient study conducted in the aspect.
Therefore, this study of dividend policy is a considerable important. For the management of any
company, the relationship between dividend and market price of common stock may become an
important guideline in setting suitable dividend policy. Major focus of this study will be to trace
the impact of dividend practice adopted by the Himalayan Bank Limited, Nepal on the market
price of the shares.

I believe that so many parties such as depositors, prospective customers, management of

commercial banks as well as other financial institutions, existing shareholders and policy makers
will be benefited from this study. This study will also provide relevant and pertinent literature for
future research on the area of dividend policy of financial management.

1.4 REVIEW OF LITTERATURE

Academics from developed share markets have put forward various theories regarding the extent
to which dividends affect the value of the share. One school of thought argues that dividend
announcement has no impact on firm value, leading to the hypothesis that dividends are
irrelevant (Miller and Modigliani, 1961; Black and Scholer, 1974; Miller and Scholes, 1982;
Uddin, 2003; Keleem and Salahuddin, 2006)

Second school of thought argues that a rise in dividend payout increases the value of a share
because dividends convey information to investors about the future prospects of the firm (e.g.
Pottit, 1972; Lonie et al., 1996; McCluskey et al.,2006). They assume that an increase in
dividends is "good news" while a dividend cut is a "bad signal" about the future earnings of the
company.

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1.5 RESEARCH METHODS
1.5.1 Types and scope of research
The present study is based on secondary source of data and information and follows the
descriptive research design. It is because this study simply, describes the dividend policy
and trends of share price in Nepal Stock Exchange of Himalayan Bank Limited, Nepal
and attempts to identify the major problems of dividend policy of the firm. It does not
examine the relationship between dependent and independent variables of Stock price in
share market.

1.5.2 Sources of Date

There are mainly two types of sources of data like primary and secondary. This study is
mainly based on secondary data.

1.5.3 Data collection methods

Data will be collected from annual reports of Himalayan Bank Limited and Nepal Stock
Exchange website.

1.5.4 Population and Sampling

There are 28 commercial banks in Nepal (Class A banks) as population and Himalayan
Bank Limited as a sample bank by random sampling method.

1.5.5 Tools and techniques of analysis

Simple statistical tools like percentage, ratios and average will be used to analyze the
data. Diagrams will be used to identify the trends of share prices.

1.6 LIMITATION OF THE STUDY

Every study has some limitations. Therefore, the study is mainly concerned with the analysis of
dividend policy and share price of commercial banks in Nepal.

The other limitations of the study are as follows.

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a. The present study in limited to Himalayan Bank Limited, Nepal only.

b. The present study considers only dividend policy and impact of share price in market. others
factors influencing the price of share are not considers.

c. The present study is will be based on 5 years data but correct conclusions can not be done
based on 5 year periods.

1.7 ORGANIZATION OF THE STUDY

The present study will be organized into 3 chapters.

Chapter I- Introduction: Background; profile of the organization, events, activities, etc;

objectives of the study; rational; method of the study; review of literature; limitations of the
study.
Chapter II - Results and Findings: Presentation of data, analysis of data and findings the study.

Chapter III - Discussion and Conclusion: Evaluating and interpreting the implications results
obtained. Include similarities and differences between results obtained and the work of others.
Present implications of conclusion for practical application or future studies.

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Bibliography:
Annual Reports (2012 to 2017), The Himalayan Bank Limited: Kathmandu; Nepal.

Annual Reports (2012 to 2017), The Nepal Stock Exchange: Kathmandu; Nepal.

Black, F. and M.S. Scholer (1974), " The Effect of Dividend Yield and Dividend Policy on
Common Stock Prices and Returns", Journal of Financial Economics 1.

Kaleem, A. and Salahuddin, C. (2006), " Impact of Dividend Announcement of Common Stock
Price at Lahore Stock Exchange (Pakistan)", South Asian Journal of Management, Vol 13 No.2.

Kothari, C.R. (1990)," Research Methodology, an Introduction," New Delhi: Vishwa Prakashan

Lonie, A.A., Abeyratna, G., Power, D.M. and Sinclair, C.D. (1996), “The stock market
reaction to dividend announcements: a study of complex market signals”, Journal of
Economic Studies, Vol. 23 No. 1.

McCluskey, T (2006), " An empirical Investigation of the Dividend Decision in Irish

Companies," Unpublished PhD Thesis, School of Business University of Dundee.

Miller, M. , Modigliani, F. (1961)," Dividend Policy, growth and the valuation of shares ",
Journal of Business , Vol 54 No. 4.

Miller, M.H. and Scholer, M.S. (1982), " Dividends and taxes: Some empirical evidence",
Journal of Political Economy, Vol 90 No. 6.

Pant, P.R. (2073), " Fundametals of Business Research Methods", Kathmandu : Byddha
Academic Enterprises.