A Dissertation submitted to the Office of the Dean, Faculty of Management In partial fulfillment of the requirements for the Master’s Degree.

CERTIFICATION OF AUTHORSHIP

I hereby corroborate that I have researched and submitted the final draft of dissertation entitled “Impact of Dividend Declaration of Market Price of the Stock” The work of this dissertation has not been submitted previously for the purpose of conferral of any degrees nor it has been proposed and presented as part of requirements for any other academic purposes.

The assistance and cooperation that I have received during this research work has been acknowledged. In addition, I declare that all information sources and literature used are cited in the reference section of the dissertation.

ACKNOWLEDGEMENT

The research “impact of dividend declaration on Market Price of the Stock” is as the partial fulfillment of master’s degree of business studies that includes the data of commercial banks.

I would like to explicit my special gratitude to my supervisor Suresh Bhandari for the continuous support and guidelines throughout the research period as a mentor. The warm gratitude also goes to all the authors and learned personalities, whose writings have been cited in this study. I also express my gratitude to all the respected teachers whose valuable inputs have helped me to carry this study smoothly and reach to my destination.

I express my heartfelt gratitude to my parents and all my family members and friends who always inspired me to complete this journey of higher education from the benchmark of my academic qualification that I had. Without their encouragement and inspiration, my higher education could not have been fulfilled.

Lastly, I am equally grateful to Mr. Madhukar Pandey Director of Nepal Mega College for his effort in designing and printing my thesis and as well to all, who had supported me to complete this study.

Sincerely, Pooja Gautam

AUTHORSHIP……………………………………………………………………………………. II

REPORT OF RESEARCH COMMITTEE…………………………………………. III

APPROVAL SHEET………………………………………………………………………….. IV

ACKNOWLEDGEMENT……………………………………………………………………. V

LIST OF TABLES…………………………………………………………………………… VIII

ABBREVIATIONS…………………………………………………………………………….. IX

CHAPTER I…………………………………………………………………………………………. 1

INTRODUCTION………………………………………………………………………………… 1

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

CHAPTER II………………………………………………………………………………………… 7

LITERATURE REVIEW…………………………………………………………………….. 7

Theoretical review……………………………………………………………………………… 7

CHAPTER III…………………………………………………………………………………….. 32

RESEARCH METHODOLOGY…………………………………………………………. 32

Research Design………………………………………………………………………………. 32

CHAPTER IV…………………………………………………………………………………….. 38

RESULTS AND DISCUSSION…………………………………………………………… 38

Analysis of Financial Indicators and Variables…………………………………….. 38

CHAPTER V………………………………………………………………………………………. 60

SUMMARY AND CONCLUSION……………………………………………………… 60

Summary………………………………………………………………………………………… 60
- Conclusion………………………………………………………………………………………. 61

REFERENCES…………………………………………………………………………………… 62

LIST OF TABLES

Summary findings of review………………………………………………………………………. 19
Summary of major Nepalese studies……………………………………………………………. 27
Wilcoxon matched-pair test of NABIL Bank………………………………………………. 39
Wilcoxon matched-pair test of NMB Bank………………………………………………….. 40
Wilcoxon matched-pair test of Nepal Investment Bank Limited…………………….. 41
Wilcoxon matched-pair test of Himalayan Bank Limited………………………………. 42
Wilcoxon matched-pair test of Nepal SBI Bank…………………………………………… 43
Overall statistics of selected sample banks…………………………………………………… 44
Association between Dividend Declaration and Market Stock Price NABIL Bank

………………………………………………………………………………………………………………..46

Association between Dividend Declaration and Market Stock Price NMB Bank.47
Association between Dividend Declaration and Market Stock Price Nepal Investment Bank Limited 48
Association between Dividend Declaration and Market Stock Price Himalayan Development Bank 49
Association between Dividend Declaration and Market Stock Price Nepal SBI Bank 51
Descriptive statistics of Nabil Bank…………………………………………………………….. 52
Descriptive statistics of NMB Bank Ltd……………………………………………………… 53
Descriptive statistics of NIBL……………………………………………………………………. 54
Descriptive statistics of Himalayan Bank Ltd………………………………………………. 55
Descriptive statistics of SBI………………………………………………………………………. 56
Correlation coefficient between MPS and other variables……………………………… 57
Regression Analysis………………………………………………………………………………….. 58

ABBREVIATIONS

AM – Arithmetic Mean

CV – Coefficient of Variance

DPR – Dividend Payout Ratio

DPS – Dividend per Share

DY – Dividend Yield

EPS – Earnings per Share

EY – Earning Yield

FY – Fiscal Year

HBL – Himalayan Bank Limited

Ltd. – Limited

MPS – Market Price per Share

NABIL – Nepal Arab Bank Limited

NEPSE – Nepal Stock Exchange

NIBL – Nepal Investment Bank Limited

NMB – NMB Bank Limited

Rs. – Rupees

SBI – Nepal SBI Bank

SD – Standard Deviation

CHAPTER I INTRODUCTION

1.1 Background of the Study

The primary objective of financial management is the maximization of shareholder’s wealth. To achieve this objective, management, the custodians of shareholder’s interests, are faced with three important categories of decision making namely, investment, financing, and dividend de- cisions. Miller and Modigliani (1961), demonstrated the irrelevance of dividend policy under a set of assumption, that is, dividend policy has no effect on stock prices. Dividend decisions in the form of dividend policies, which form the focus of this study, involve the determination of the payout policy that management follows in determining the size and pattern of cash dis- tributions to shareholders over time (Lease et al., 2000). According to Botha (1986), the invest- ment, financing, and dividend decisions are interdependent and must be resolved simultane- ously. A combination of these policy decisions should theoretically maximize shareholders’ wealth.

Dividend payment is a major component of stock return to shareholders. Dividend payment could provide a signal to the investors that the company is complying with good corporate governance practices (Jo & Pan, 2009). Good corporate governance practices are valuable for a company as it implying that the company is able to raise funds from capital market with attractive terms. By distributing dividend, it able to attract investors and indirectly increase the company share price.

This sort of company could easily raise funds through new share issuance for expansion which then would increase profits and increase share price. Dividend policy is thus an important part of the firm’s long run financing strategies. In today’s corporation, dividend policy has gone beyond the scope to include issues as whether to distribute cash via share repurchase or through specially-designated rather than regular dividends (Hussainey et al., 2012).

Different studies have found dividends are irrelevant to a market value of firm in a perfect capital (Miller & Modigliani, 1961) and dividend policy is relevant by (Angelo et al., 1996). Payment of large dividends reduces risk and influence on stock price (Gordon, 1963) and is a roadmap for the future earnings (Baskin, 1989). The connection between dividend payout and

directorship outside the organization is negative (Al-Najjar, 2009). Rozeff (1982) and Easter- brook (1984) assumed that payment of dividends motivates the managers to invest at high cost of capital not below and save organizational efficiencies. Some authors have stressed the im- portance of information content of dividend (Asquith & Mullin, 1983).

Guo (2002) assumed that the investors who make the investment in ordinary shares face the un-diversifiable risk. Prior to the Miller and Modigliani (1961) dividend theory, Lintner (1956) presented a model based on stylized yield of the specific characteristics of a ‘sticky of divi- dend’. The author found that firms are reluctant to decrease dividends since this could lead investors to interpret poor performance and cause the stock prices to fall as well. Supporting Lintners’ (1956) model, Bhattacharya (1979), and Miller and Rock (1985), suggested that div- idend announcements convey information about the future prospects of the firms. Due to the information content in dividends, dividend announcements are taken as a signal of the compa- nies’ good position that will raise the stock prices and vice versa. Investors with imperfect information about company conditions would use dividends as a clue to the prospects of the companies.

Based on the survey of S&P 500, Lazo (1999) showed that 87 percent of dividend paying com- panies believed the usefulness of dividends to signal information regarding the company future earnings. Brickley (1983) indicated dividend signaling could provide information when man- agers pay both regular dividends and occasional special dividends (extras, specials or year- ends). Different label of dividend such as regular and special dividend could convey warning to shareholders since special payout most likely would not be repeated compared to the regular dividend. Investors could use the special payout announcement by company as a hedged man- agerial indication about future profitability.

A managed dividend policy, on the other hand, attempts to smooth dividend payments relative to earnings and investments. By following this policy, management attempts to fix dividend payments to certain levels of earnings and will only increase dividend payments once an in- creased level of earnings can be sustained. According to Lease et al., (2000), under a managed dividend policy, managers are managing the dividend level and growth. Dividends grow in even increments and are predictable. Shareholders would have much more confidence in pre- dicting the dividend in the following year than would shareholders under a residual policy. The dividend policy of companies has been a common subject of research for more than half of a

century (Litner, 1959; Gordon, 1959; Modigliani, 1982). Dividend policy has long been an issue of interest in the financial literature and, despite the vast research on the topic, it remains an open subject. Ever since the work of Lintner (1956), followed by the work of Miller and Modigliani (1961), dividend policy remains a controversial issue.

In fact, this has been true since Miller and Modiglianis (1961), irrelevance proposition, accord- ing to which dividend policies are all equivalent and there is no particular policy that can in- crease shareholders wealth in perfect capital markets. There are four dividend policies in prac- tice as outlined by Pandey (1999); residual dividend policy which dictates the payment of div- idends in the absence of investment opportunities, constant amount per share, constant amount per share plus extra depending on profits and constant payout ratio.

Therefore being a matter of great importance and relevance in business and investment decision the study of dividend policy and stock price is of great significance. The importance of study has further increased due to diverse finding in different studies conducted in the topics of div- idend policy and stock price in the different corners of the world. Dividend: that proportion of profit, distributed by company among its shareholder in distinction to total profit of the com- pany. Then, the strategies build by company about gain of the company to be distributed as dividend and retained earning known to be dividend policy.

Capital market in Nepal is in pre-emerging stage of development. The payments of dividend of the firm are governed by Companies Act, 2006 in Nepal. The provisions of Bank and Financial Institutions Act, 2006, and Unified Directives, 2013 issued by Nepal Rastra Bank govern the declaration and payment of dividend by the financial institution companies in Nepal. The pro- visions from Companies Act, 2006 indicate that dividends to be paid only out of profits of that fiscal year for which the resolution passed regarding the payment of dividends by the Annual General Meeting. Similarly, the provisions of the Financial Institutions Act (2006), and Unified Directives issued by Nepal Rastra Bank require fulfilling the capital requirements, payment of preliminary expenses or losses and creation of reserve funds before declaring cash dividends to shareholders. Nepal being a capital deficient country has no other best alternative than to develop capital market to allocate scarce resources efficiently within the economies (Adhikari, 2014).

1.1 Problem statement

Many empirical studies have been carried out in the developed capital market to analyze the relationship between dividend and stock prices. However, no conclusive relationship exists be- tween 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. Though there are above mentioned empirical evidences in the context of foreign countries, no such evidence exist in the context of Nepal. This study therefore deals with the following issue; what might the impact of dividend declaration on market price per share?

1.2 Objective of the study

The major objective of this study is to analyze and evaluate the impact of dividend declaration on market price of stock in some selected companies in Nepal. The specific objectives are as:

To examine relationship between EPS and MPS.
1. To examine relationship between DPS and MPS.
2. To examine relationship between DPR and MPS.
3. To examine the impact of dividend declaration on Market price per share.

1.3 Hypothesis

The volatility of ordinary stock is a measure used to define risk, and represents the rate of change in the price of a security over a given time. The greater the volatility, the greater the chances of a gain or loss in the short run.

Volatility has to do with the variance of a security’s price. Thus, if a stock is labeled as volatile, its price would greatly vary over time, and it is more difficult to say in certainty what its future price will be. Investors’ preference is for less risk. The lesser the amount of risk, the better the investment is (Kinder, 2002). In other words the lesser the volatility of a given stock, the greater its desirability is. The linkage between the dividend policy of corporations and the volatility of their stock prices has been explored at different times by different researchers (Allen & Ra- chim, 1996; Baskin 1989). Also, a number of dividend theories exist that attempt an explana- tion of the influence of corporate dividend policies on stock prices.

Continuing a controversial topic among scholars, Lintner (1956), and Gordon and Shapiro

(1956), admit that receiving expected dividends are more valuable than waiting for capital gains. Al-Malkawi (2007), adds that due to the uncertainty of future cash flows and information asymmetry, investors would prefer dividends to retained earnings. This theory includes two ideas: the dividend payout ratio is positively related to share price, and it is inversely related to the cost of equity capital. Thus, firms must conduct a high dividend payout policy to boost firm value. However, Miller and Modigliani (1961), and Black and Scholes (1974) develop an influential argument that dividend policy does not influence the stock price and costs of capital. Thus, dividend policy is not relevant to the stock volatility.

Besides the theories above, the signaling hypothesis shows that an increase in dividend pay- ments is a positive signal and bespeaks good prospects of firms’ earnings and vice versa (Al- Malkawi, 2007; Miller & Modigliani, 1961; Pettit, 1972). In addition, the clientele effect the- ory explains that different investor groups will prefer different dividend policies (Al- Malkawi, 2007). Investors who pay higher taxes will expect businesses to pay little or no divi- dend, and they should be compensated in terms of their gains from the growth of stock price. In contrast, small investors would prefer companies paying dividends because they may not pay transaction costs once they sell the stocks (Al-Malkawi, 2007).

Based on the above discussion the mentioned hypotheses is developed in this study: There is positive impact of dividend declaration on market price of the stock.

1.4 Rationale of the study

Although the corporate sector of Nepal is small and unorganized as compared to developed countries. In recent year, people are attracted toward share investment in corporate sector for the purpose of getting more and more returns. Therefore, dividend policy should be an effective to attract new investors and present investors to keep happy and to maintain goodwill of the company. When any 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, he could have earned. In capital market the return can be in two ways; dividend and capital gain.

So the research is important for various reasons, some of them are stated as below:

As stated above, corporate sector is expanding and prospective. So that investors are to gain a perfect knowledge about the market. This study tries to provide useful infor- mation to the investors.
Help for the further research in this field.
Examine investors’ preference on dividend and retained earnings, so as to find out which are preferred.
The impact of cash dividend on stock price.

1.5 Limitations of the study

Then the research has some of the limitation as follows:

This study only covers the five sample banks.
The selected sample does not cover the all industrial sectors of Nepal.
This study covers only the secondary information ignoring the perceptual information.

CHAPTER II LITERATURE REVIEW

This chapter provides review of related literature of the study associated with dividend decla- ration and the market price per share. It is divided into two sections. First section consists of a theoretical review of project. And the second section presents an empirical review of related studies. Empirical review section deals with a review in the context of Nepal as well as outside Nepal.

2.1 Theoretical review

In early corporate finance, dividend policy referred to a corporation’s choice of whether to pay its shareholders a cash dividend or to retain its earnings. It addressed the frequency of such payments (whether annually, semi-annually or quarterly) and how much the company should, if it decides to do so, pay. Dividend policy, in today’s corporations, has gone beyond this scope to include such issues as whether to distribute cash via share repurchase or through specially- designated rather than 4 regular dividends. Other issues considered are how to balance the preferences of highly taxed and relatively “untaxed” investors, how to maintain, and improve, the value of its shares and stocks in the market, etc. For Faloye and Oluwole (2014) dividend announcement is always expected to deliver some information to investors in relation to their corporations’ performance since the stock is always considered as being bullish or bearish. Securities market is supposed to be bullish if the stock prices are consistently on an upward trend and bearish if there are consistently downward. There is a significant positive relationship between dividend announcement and share price on a bullish market whereas bearish market listed as a negative significant relationship.

However, the vital questions asked today by corporate managers are the very same ones asked by managers in the 1950s. Litner (1959), identified these questions as:

Should dividend payments be maintained at its current level or changed?

Would investors prefer stable dividend payouts, or those that fluctuate with earnings?

Should dividend policy favor older or young investors?

The dividend policy of companies has, thus been a common subject of research for more than

half of a century (Linter, 1959; Gordon, 1959; Modigliani, 1982) and it has been related to several vital corporate matters ranging from agency problems to share valuation.

2.1.1 Dividend

The term dividend possesses great significance for stakeholders since the evolution of corporate business. Earning distributed to shareholders are called dividend. Dividend refers to the portion of earning of a firm that is distributed to the shareholders in return to their investment in the shares (Hunt, William & Garden: 1997). Once a dividend is declared, stakeholders become general creditors of the company until the dividend is not actually paid. Dividends are the foun- dation for the valuation of common stocks. Also, such payment may be useful in diversification of investment in an uncertain world (Dc Anglo & Dc Anglo, 2007).The important aspect of dividend policy is to determine the division of earning into dividend to the shareholders and retention for plugging back to company.

Dividend policy is a crucial and integral part of financial management. Dividend makes the investors happy in one hand and on the other hand, the dividend distribution decreases the internal financing requirement for making investment in good opportunities. This may hamper the growth of the firm. The dividend payout reduces the amount of earning retained financing. This financing can be made either through the external sources or internal. The external sources includes the issue of share, debenture bond etc. Whereas the internal of sources are the earning retained after the payment of dividend. Thus the amount of internal financing is largely de- pending 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 earnings due to the extra cost required.

It is fact that a high payout policy means more current dividend and less retained earnings, which may consequently result in slower growth and perhaps lower market price per share. Low payout policy means less current dividends, more retained earnings and higher capital gain and perhaps higher market price per share.

2.1.2 Dividend payout schemes

Stability or regularity of dividend is considered as a desirable policy by the management of companies. Most of the shareholders also prefer stable dividends because all other things being the same, stable dividend have a positive impact on the market price of the share. By stability,

we mean maintaining their positions in relation to a trend live preferably one that is upward sloping. Four of the commonly used dividend policies are:

Constant dividend policy is based on the payment of a fixed rupee dividend in each period. A number of companies follow the policy of paying fixed amount per share as dividend every period, without considering the fluctuation in the earning of the company.

ii. Constant payout ratio

The ratio of dividend to earning is known as payout ratio. When fixed percentage of earning is paid as dividend in every period, the policy is called constant payout ratio. Since earning fluc- tuates, following this policy necessarily means that the rupees amount of dividend will fluctu- ate.

iii. Low regular dividend plus extras

The policy of paying a low regular dividend plus extras is a compromise between a stable dividend (or stable growth rate) and a constant payout rate. Such a policy gives the firm flexi- bility, yet investors can count on receiving at least a minimum dividend. It is often followed by firms with relatively volatile earning from year to year.

iv. Residuals dividend policy

Residual dividend policy is based in the premise that investors prefer to have a firm terrain and reinvest earnings rather than pay them out in dividend if the rate of return the firm can earn on reinvested earnings exceeds the rate of return investors can obtain for themselves on other in- vestments of comparable risk. A firm using residual policy would follow these four steps:

Determine the optimal capital budget.
1. Determining the amount of equity required to finance the optimal capital budget given its target capital structure, recognizing that the funds used will consist of both equity and debt to preserve the optimal capital structure.
  1. To the extent possible, use retained earnings to supply the equity required.
  2. Pay dividends only if more earnings are available those are needed to support the opti- mal capital budget.

2.1.1 Forms of Dividend

The usual practice is to pay dividend in cash. The type of the dividend that corporations follow is partly a matter of attitude of directors and in various circumstances and financial constraints that bound corporate plan and polices. Considering the changing needs of corporation, dividend is being distributed in several forms cash dividend, stock dividend, script dividend, property dividend and bond dividend.

Cash Dividend

Cash dividend is the dividend, which is distributed to shareholders in cash out of earning. When cash dividend is distributed, both total assets and net worth of the company are decreased. The market price of the share drops in most case by the amount of cash dividend distributed (Hast- ing: 1966) the objectives of the cash dividend are as follows: – a) To distribute the earning to shareholders, as they b) Hold the proportion of the share. c) To build an image in the capital market so as to create d) Favorable condition a raise the funds at the needs. e) To make distri- bution easy and to account easily.

The market price after cash dividend in calculated as follows (Thapa & Koirala, 2007):

–dividend per share. Stock Dividend

Stock Dividend or Bonus Shares a stock dividend occurs when the board of directors authorize a distribution of common stock to existing shareholders. Stock dividend increases the number of outstanding shares of the firm’s stock. Stock dividend requires an accounting entry transfer from the retained earning account to the common stock and paid in capital accounts. (Thapa & Koirala; 2007). Market price per share after stock dividend:

The objectives of the cash dividends are as follows:-

A desire to lower the price of the stock on a per share basis to prompt more trading and increase liquidity.
To have optimal cash in hand.

Firms often use stock dividends in place of cash dividend if they are retaining money for growth.
To send positive information.

2.1.2 Dividend Payment Procedure

Firms usually pay dividend on a quarterly basis in accordance with the following payment pro- cedures.

a) Declaration Date

This is the day on which the board of directors declare the dividend. At this time they set the amount of the dividend to be paid, the holders of record date, and the payment date.

b) Holders of Record Date

This is the date the company open the ownership books to determine no will receive the divi- dend; the stockholders of record on this date receive the dividend.

c) Ex-Dividend Date

This date is four days prior to the record date. Share purchased after the ex-dividend date are not entitled to the dividend. Only investors who hold the share prior to the ex-dividend date receive the dividend.

d) Payment Date

This is the day when dividend checks are actually mailed to the holders of record.

Factors Affecting Dividend Policy

Many considerations may affect a firm’s decision about its dividends, some of them as unique to that company, and some of the more general considerations are given subsequently (Thapa & Koirala, 2017).

a) Desire of Shareholders

Shareholders may be interested either in dividend incomes or capital gains. Wealthy sharehold- ers in a high income tax bracket may be interested in capital gains as against current dividend. A retire and old person, whose source of income is dividend would like to get regular dividend.

b) Legal Rules

Certain legal rules may limit the amount of dividend- a firm may pay i.e.

If the firm’s liabilities exceed its assets,

If the amount of the dividend exceeds the accumulated profits,

If the dividend is being paid from capital invested in the firm.

c) Liquidity Position

The cash or liquidity position of the firm influences its ability to pay dividends. A firm may have sufficient retained earnings, but if they are invested in fixed assets, cash may not be avail- able to make dividend payment.

d) Need to Repay Debt

The need to repay debt also influences the availability of cash flow to pay dividend.

e) Restrictions in Debt Contracts

It specifies that dividends may be paid only out of earnings generated after signing the loan agreement and only when net working capital is above a specified amount.

f) Rate of Asset Expansion

A high rate of asset expansion creates a need to retain funds rather than to pay dividends.

g) Profit Rate

A high rate profit on net worth makes it desirable to retain earning rather than to pay them out if he investors will earn less on them.

h) Tax Position of Shareholders

The tax position of stockholders also affects dividend policy. Corporation owned by largely taxpayers in high income tax brackets tend toward lower dividend payout.

i) Stability of Earning

A firm that has a stable earnings trend will generally pay a larger portion of its earnings in dividend .it earnings fluctuate significantly; a larger amount of the profits may get retained to ensure that enough money is available for investment projects when needed.

j) Control

For many small firms, and certain large ones, maintaining the controlling vote is very important

.those owners would prefer the use of debt and retained profits to finance new investments rather than issue new stock. As a result dividend payout will be reduced.

2.2 Empirical review

This section is divided into two parts. First part deals with the foreign article whereas; second part deals with related studies in Nepalese context. The review of literature has been conducted based on the chronological order and categorize into different periods as under:

Recently, as one could see, even well performing companies are reluctant to increase dividend payments but contrarily at the same time some companies despite experienced decreases in net income have announced constant or increase their dividend payments rather than cut them down. With the assumption of a perfect market (no taxes, no transaction costs and other market imperfections), Miller and Modigliani (1961) showed that dividends are irrelevant. Retaining earnings or paying them dividends does not affect the firms’ values. Firms could pay dividends as much as they need and they also could use external sources of funds to finance their debts without affecting their firms’ values. The authors stated that only future earnings and risk of investment drive the firms’ values.

Prior to the Miller and Modigliani (1961) dividend theory, Lintner (1956), presented a model based on stylized yield of the specific characteristics of a ‘sticky of dividend’. The author found that firms are reluctant to decrease dividends since this could lead investors to interpret poor performance and cause the stock prices to fall as well. Supporting Lintners’ (1956), model,

Bhattacharya (1979), and Miller and Rock (1985), suggested that dividend announcements con- vey information about the future prospects of the firms. Due to the information content in div- idends, dividend announcements are taken as a signal of the companies’ good position that will raise the stock prices and vice versa. Investors with imperfect information about company con- ditions would use dividends as a clue to the prospects of the companies.

The empirical relations between dividend policy and stock volatility have been found by prior studies. Dividend yield and payout ratio are considered as the proxies of dividend policy. Gor- don (1963), argues that paying more dividend could reduce risk, affect capital costs, and reduce stock price. Some empirical evidence has demonstrated a negative relation between dividend yield and/or dividend payout and share price volatility in advanced markets. Baskin (1989), demonstrates that the return on each share has an inverse relation with the price fluctuation. The managers, therefore, may employ stock policy to influence the risk of stocks (for example, to reduce stock volatility via increased dividend payments). The research by Allen and Rachim (1996), on the impact of dividend policy on stock price movement at the Australian Securities Exchange (ASX) suggest that stock price volatility is significantly, negatively related to divi- dend payout ratio. Hussainey et al. (2011), also add that dividend payout rate has a negative relationship with the stock price fluctuation. Profilet and Bacon (2013), conclude that both dividend payout and dividend yield are negatively linked to the fluctuation of securities price. Other evidence has empirically shown a positive linkage between dividend yield and/or payout ratio and stock price fluctuation in developed markets. Hussainey et al., (2011), study the rela- tionship between dividend policy and stock price fluctuation of listed companies in the UK market and show that dividend yields have a positive connection with stock price changes.

The linkage between dividend policy and stock price volatility in emerging markets has been investigated by Neupane (2014). According to study of Commercial banks in Nepal, study rests to conclude that the cash dividend can’t be said as a sole factor to affect price of share. But there are some other factors like earning power, bonus shares, information value of dividend decision etc. that also cause the share price fluctuation. Rashid and Rahman (2008), employ the data in the Bangladesh stock market and find no significant connection between dividend yield and stock price fluctuation. Similarly, Ilaboya and Omoye (2012), investigate the influence of div- idend policy on share price fluctuation in the Nigerian Stock Exchange market. By employing ordinary least squares (OLS) regression method, the research does not find the connection be- tween dividend yield, payout ratio, and stock price volatility. In the Sri Lankan market, Jahfer

and Mulafara (2016), discover that stock price fluctuation is significantly positively related to dividend yield. Nevertheless, Gunaratne, Priyadarshanie, and Samarakoon (2016), explain that at this stock market, while share price volatility is negatively related to dividend yield in the present year, the payout ratio in both present and prior years is positively linked to stock price fluctuation.

When reviewing previous studies conducted on the relationship between dividend policy and stock price volatility, it was deemed necessary to also review studies that investigated the fac- tors and variables that also could have an effect on the price volatility of a given equity. In doing this, not only were prior opinions on how dividends affect the performance of the stock found, but the previous opinions on how other related variables are correlated to stock price risk were also found.

Another study was done by Allen and Rachim (1996), which looked at a similar relationship but used the Australia stock exchange as their target market. In their study they found, similar to Hussainey, Mgbame, Chijoke-Mgbame, and Aruoriwo’s (2011), findings, that a firm’s fi- nancial leverage had a large positive correlation to price volatility. In addition to this, they also found that earnings volatility, or the change in quarterly earnings per share had a substantial positive correlation. They cited that this finding was not surprising but sensible in the least. Allen and Rachim went on to find a significant negative correlation between dividend yield and price volatility. A&R pointed out that, because of the high similarity between dividend yield and payout ratio, the decision was made to drop the dividend yield as a variable and focus towards the payout ratio. They ended their research quoting that, even though the effects of payout ratio did have a certain level of correlation with price volatility, they felt that the findings were not substantial enough to warrant causation.

An additional study was done by Nazir, Nawaz, Anwar, and Ahmed (2010). In their study they chose to look at variables that the above these had investigated, but in their examination chose to conduct their research in an emerging market.

Based on the survey of S&P 500, Lazo (1999), showed that 87 percent of dividend paying companies believed the usefulness of dividends to signal information regarding the company future earnings. Brickley (1983), indicated dividend signaling could provide information when managers pay both regular dividends and occasional special dividends (extras, specials or year- ends). Different label of regular and special dividend could convey warning to shareholders

since special payout most likely would not be repeated compared to the regular dividend. In- vestors could use the special payout announcement by company as a hedged managerial indi- cation about future profitability.

There are various studies that were carried out up to this period. There are many literatures which are considered as the important one in the field of dividend policy and analysis of price volatility of the stock. Some of these literatures have given birth to new theories in the field of dividend policy.

Dividend depends in part on the firm’s current earnings and in part on the dividend for the previous year Lintner (1956). He observes that corporate managers are averse to changing the dollar amount of dividends in response to changes in earnings, particularly when earnings de- cline. Three of the more commonly used dividends policies are constant payout ratio, regular dividend policy, and low-regular and extra dividend policy. The dividend policy of the firm is irrelevant in a perfect capital market because the shareholders can effectively undo the firm‘s dividend strategy. If a shareholder received a greater dividend than desired, he or she 2 can reinvest the excess funds. He finds that major changes in earnings with existing dividend rates are the most important determinants of the firm’s dividend policy. He also finds that firms tend to make periodic partial adjustments toward a target payout ratio rather than dramatic changes in payout.

In today’s corporate finance, dividend policy addresses more issues such as how firms can attract investors in different tax brackets and how firms can increase the market value of firm and share repurchase instead of cash dividends (Hashemijoo et al., 2012). Therefore, this policy is related to dividing the firm’s earning between payment to shareholders and reinvestment in new opportunities.

Investors supply capital to business only because they have the reasonable expectation of even- tually receiving payouts from company in one form or another (De Anglo et. al., 2007). Hence, optimal dividend policy should be determined which will ensure maximization of the wealth of the shareholders.

A number of studies on impact of dividends on stock price have been carried out in different parts of the world particularly in developed countries. Most of the earlier studies show the

significant role of dividend policy on stock price. The corporate firms should follow the ap- propriate dividend policy to maximize the shareholders’ value. Dividend policy is considered as one of the important and critical variables affecting the share price. In the context of Nepal, limited studies (such as Pradhan: 2003, Manandhar: 1998) have been carried out by research scholars. Still there is a gap in the financial literature concerning the effect of dividends on stock prices particularly in banking and nonbanking sectors of Nepal. In this way there is still some ground to check the issue of stock price volatility of Nepalese firm looking at the scenario prevalent in Nepal. The change in the banking practices and use of methodology applied in many new foreign literatures to analyze this topic has made it a relevant question to be an- swered with the help of this study. In this way few prevalent gaps in previous literature will be tried to answer with the help of this study.

Because the more recent studies that have been conducted have cited Baskin (1989), it is ap- propriate that his work be mentioned first. What Baskin set out to accomplish was to, not only figure out if dividend yield was a proxy for price volatility, but whether or not dividend yield had a direct effect on the volatility of a common stock’s price when other related factors were controlled. Baskin concluded his study by acknowledging that dividend yield among other fac- tors certainly had a defined correlation with the volatility of a given stock price, but could not conclude that dividend yield had a direct cause and effect relationship with price volatility.

In a study conducted by Hussainey, Mgbame, Chijoke-Mgbame, and Aruoriwo (2011), the objective was to find the relationship and affects that dividend policy had on a given stock’s volatility in the developed economy of England. During the study they also ran regressions between certain factors that could affect the volatility such as size and leverage. In their study they discovered that both the payout ratio and dividend yield had significant negative relation- ships to stock volatility. Further, a negative relationship was found between size and volatility and a positive relationship between leverage and volatility. They cited that through their find- ing they show that the larger a company was (in assets), the less volatile the stock tended to be. They also pointed out a trend that as financial leverage (debt carried on the balance sheet) increased, the volatility of the stock price tended to increase as well. This study made it evident that other variables would need to be controlled if someone was to attempt to get a true corre- lation between dividend policy and stock price volatility.

Another study was done by Allen and Rachim (1996), which looked at a similar relationship

but used the Australia stock exchange as their target market. In their study they found, similar to Hussainey, Mgbame, Chijoke-Mgbame, and Aruoriwo’s (2011) findings, that a firm’s fi- nancial leverage had a large positive correlation to price volatility. In addition to this, they also found that earnings volatility, or the change in quarterly earnings per share had a substantial positive correlation. They cited that this finding was not surprising but sensible in the least. Allen and Rachim went on to find a significant negative correlation between dividend yield and price volatility. A&R pointed out that, because of the high similarity between dividend yield and payout ratio, the decision was made to drop the dividend yield as a variable and focus towards the payout ratio. They ended their research quoting that, even though the effects of payout ratio did have a certain level of correlation with price volatility, they felt that the find- ings were not substantial enough to warrant causation.

Kanniainen (2007) stated that stock price volatility is a measure of the arrival rate of new in- formation. Investors, brokers, dealers, academics and regulators all concern about volatility in the stock prices. They do so not only because volatility is a measure of risk and affect the value of firm but also because changes in the stock prices reflect important news about the firm. Suleman et al. (2011) revealed that share price volatility has significant positive relationship with dividend yield. Khaled et al. (2010) showed that there is positive relationship between dividend return (cash) and stock price changes but there is negative relationship between divi- dend payment ratio and stock price changes.

Ajayi and Seyingbo (2015) revealed that there is a positive relationship of dividend payout ratio, earnings per share, size of the bank with share price volatility, while there exist a negative relationship between earnings volatility and share price volatility. Growth and earnings vola- tility have negative and insignificant relation with price volatility. Jecheche (2012) showed that dividend yield and dividend payout have significant effect on the price volatility. Profilet and Bacon (2013) revealed that leverage and growth both have negative relationship with stock price volatility.

According to Hussainey, Mgbame, & Chijoke-Mgbame (2011), the study on “Dividend Policy and Share Price Volatility” shows the positive relations between dividend yield and stock price changes and negative relations between dividend payout ratio and market price per share. Their results further show that the firm’s earnings, growth rate, level of debt and size also causes the change in stock price of the UK.

Adres, Betzer, Bongard, Haesner and Theissen (2009) conducted a study in Germany to inves- tigate dividend announcement, market expectations and corporate governance. The results of the study depicted that there is a significant relationship between the market expectations and dividend announcement whereby if the dividend followed to prior market expectation then the share prices increased after dividend announcement.

In 1961, Merton Miller and Franco Modigliani (M&M) showed that under certain simplifying assumptions, a firm’s dividend policy does not affect its value. The basic premise of their ar- gument is that firm value is determined by choosing optimal investments. The net payout is the difference between earnings and investments, and simply a residual. Because the net payout comprises dividends and share repurchases, a firm can adjust its dividends to any level with an offsetting change in share outstanding. From the perspective of investors, dividends policy is irrelevant, because any desired stream of payments can be replicated by 14 appropriate pur- chases and sales of equity.

Table 1

Summary findings of review

Study	Result
Kenyoru (2013)	The most important results of the study were that payout ratio is important determinants for share price volatility. Payout ratio reduces price volatility due to high confined of the managers of the firm in both the stability and increases in the firms’ future earnings.
Sadiq (2013)	The study found out a negative but statistically insignificant relationship be- tween earnings per share and price volatility stocks. It also identified that there is no relationship between price and volatility and earnings volatility of firms. This study has also identified a positive but statistically insignificant relation- ship between sizes of firms and price volatility of stocks.
Mokaya (2013)	The study established a strong and positive correlation between dividend pay- out and market share value. There was a positive correlation between dividend growth rate and market value of share. There was a positive correlation be- tween regularity of dividend declaration and market share value.
Gabriel and Ugochukwu (2012)	The major result of the study showed stock prices volatility could not predict their current stock prices and hence volatility was insignificant and negative. The study also found that policy makers are advised to review their economies policies.

Adaramola (2012)	The major findings of the study show that dividend payment is insignificant and dividends have significant information content about stock prices in Ni- geria.
Khan (2011)	The results of this study showed that the stock dividend, earnings per share, profit after tax, and return on equity has significant positive effect on stock prices and retention ratio has negative effect on stock prices. Overall it is con- cluded in this study that dividend policy has significant positive effect on stock prices.
Hussainey (2010)	There was a positive relationship between dividend yield and stock price changes and a negative relationship between dividend payout ratio and stock price changes. The study also found that there were a significant negative re- lationship between the payout ratio of a firm and the volatility of its stock price and a negative relationship between dividend yield and the volatility of stock price.
Pani (2010)	The major findings of the study were fixed effects models indicate that divi- dend-retention Ratio along with size and debt-equity ratio plays a significant role in expanding variations in stock returns.
Denis (2008)	The results of their study show that the general trend in the US, Canada, UK, Germany, France, and Japan is that the companies having a higher profit abil- ity ratio and a higher fraction of retained earnings to total equity pay dividends to their investors.
Amidu (2007)	The results of his study showed that there is a positive relation between ROA, Dividend Policy and Growth in Sales and there is a negative relation between ROA, DPR and Leverage. The result also provides the strongest evidence for the relevance of dividend policy to the firms’ performance.
Ramadam (1999)	The most important results of the study showed significant negative effect of the two components of the dividend policy, dividend yield and dividend pay- out on the share price volatility.
Zakaria (1998)	The study showed that there is a significant positive relationship between the dividend payout ratio of a firm and share price volatility. Dividend yield is significant and negatively related to the movement of stock price.
Elton (1970)	The result showed that differential taxes induced a preference for capital gains relative to cash dividends, therefore supporting the tax clientele hypothesis (that is, investors in high tax brackets invest in low-dividend yield stocks and vice versa). The study concluded, “firms not only seem to attract a clientele but they attract a rational clientele- one which should prefer their dividend policy.”

Miller and Modiglianis (1961)	Irrelevance proposition, according to which dividend policies are all equiva- lent and there is no particular policy that can increase shareholders wealth in perfect capital markets.
Lintner (1956)	The result finds that major changes in earnings with existing dividend rates are the most important determinants of the firm’s dividend policy. He also finds that firms tend to make periodic partial adjustments toward a target pay- out ratio rather than dramatic changes in payout.

Thus, investors will not pay a premium for any particular dividend policy. M&M concluded that given firms optimal investment policy, the firm‘s choice of dividend policy has no impact on shareholders wealth. In other words, all dividend policies are equivalent. The most im- portant insight of Miller and Modigliani‘s analysis is that it identifies the situations in which dividend policy can affect the firm value. It could matter, not because dividends are “safer” than capital gains, as was traditionally argued, but because one of the assumptions underlying the result is violated. The propositions rest on the following assumptions namely: Information is costless and available to everyone equally, no distorting taxes exist, floatation and transpor- tation costs are non- existent and non-contracting or agency cost exists.

Elton and Gruber (1970), presented empirical evidence about the tax induced clientele hypoth- esis by observing the share price behavior around the ex-dividend day 19. Examining shares listed on the NYSE paying a dividend between April 1, 1966 and Gruber found that share prices fell by less than the amount of the dividend on ex-dividend days. They also found a positive relationship between the dividend yield of a stock and the proportionate size of its ex-dividend price drop. Elton and Gruber interpreted their results as evidence that differential taxes induced a preference for capital gains relative to cash dividends, therefore supporting the tax clientele hypothesis (that is, investors in high tax brackets invest in low-dividend yield stocks and vice versa).

The study found that share prices fell by less than the amount of the dividend on ex-dividend days and also found a positive relationship between the dividend yield of a stock and the pro- portionate size of its ex-dividend price drop. The result showed that differential taxes induced a preference for capital gains relative to cash dividends, therefore supporting the tax clientele hypothesis (that is, investors in high tax brackets invest in low-dividend yield stocks and vice

versa). The study concluded, “Firms not only seem to attract a clientele but they attract a ra- tional clientele – one which should prefer their dividend policy”. These models take into ac- count risk, taxes, and transaction costs. Just before the ex-day, dividend-paying stocks can flow temporarily to the investors who value them the most.

In a study that examines whether dividend policy influences firm performance in the Ghana Stock Exchange, Amidu (2007), found that dividend policy affects firm performance especially the profitability measured by the return on assets. The results showed a positive and significant relationship between return on assets, return on equity, growth in sales and dividend policy. This showed that when a firm has a policy to pay dividends, its profitability is influenced. The results also showed a statistically significant relationship between profitability and dividend payout ratio. A study revealed that dividend policy affects firm performance as measured by its profitability. The results showed a positive and significant relationship between return on assets, return on equity, growth in sales and dividend policy. His results also support the results of previous studies that provide the strongest evidence for the relevance of dividend policy to the firms’ performance.

Denis and Osobov (2008), examined the dividend behavior of companies headquartered in six different countries (Canada, France, Germany, Japan, United Kingdom and United States) for the years 1989 till 2002. They are doing this for each country separately. They find that there are common determinants across countries that determine the likelihood of paying dividends. They also observe that dividends are concentrated among the most profitablefirms.This- castsdoubtontheclienteletheory.Inacapitalmarketin which 90% of the stocks are dividend pay- ing stocks it is implausible to create a well-diversified portfolio for a shareholder that would prefer a non-dividend portfolio. They also cast doubt on the signaling theory. According to the signaling theory it is namely young firms that are most likely to pay dividends.

As per Irandoost (2013), the primary objective of financial management of firms, i.e. the wealth maximization of stockholders, the decision towards the allocation of firms earning should ultimately be to increase the shareholders wealth. Every firm operating in a given in- dustry follows some sort of dividend payment pattern or dividend policy, which is obviously a financial indicator of the firm. Thus, demand of the firm´s share price should be, to some extent, dependent on the firm´s dividend policy (Masum (2014). The relation of dividend and

share prices has been one of the greatest puzzles in finance and there is no satisfactory con- clusion regarding the relationship between these two.

Dividend policy connotes pay-out policy, which managers pursue in deciding the size and pattern of cash distribution to shareholders over time (Waithaka and etal. (2012)). Since the main objective of financial management is to maximize the market value of equity shares, one key area of study is the relationship between the dividend policy and market price of eq- uity shares. However, dividend policy is considered as one of the most controversial issue in corporate finance over a long period of time.

A study on dividend policy and stock price behavior in Indian Corporate Sector features a panel data approach to analyze the relationship between dividend- retention ratio and stock- price behavior while controlling the variables like size and long- debt, debt-equity of the firm Pani (2010). The sample is taken across six different industries namely electricity, food and bever- age, mining, non-metallic, textile and service sector. The results are based on fixed-effect mod- els as these perform statistically better than random effects and pooled OLS model. The major findings of the study were fixed-effect models indicate that dividend-retention ratio along with size and debt- equity ratio plays a significant role in explaining variations in stock returns. The fixed effects models show the presence of firm level effect in explaining the possible links between dividend policy and stock price behavior of the firm. In another words it exhibits the possibility of “clientele effect” effect in case of some industries. Therefore the model helps to understand the intricacies of dividend policy and stock- return behavior in Indian corporate sector for the same period.

Wasfi Al Troudi and Maysa’ a Milhem (2013), also in their research on The Relationship of Cash Dividends, Retained Earnings and Stock Prices, found a positive and significant relation- ship between study variables. The result of positive and significant relationship between cash dividends and the stock prices imply that the cash dividends per share might lead to increase the closing price of the firm’s stock. Hence, the study supports the information-signaling hy- pothesis of dividend indicating changes in share prices with change in dividend declaration.

Habib and et al. (2012) examine the relationship between dividend policy measure i.e. dividend yield and pay-out ratio and share price volatility in Pakistani stock market. The findings of regression analysis showed the positive relationship of share price volatility with dividend yield, but negative with pay-out ratio. Hashemijoo and et al., (2012) also conducted similar

research in Malaysian stock market and the findings of research showed significant negative relationship between share price volatility with two main measurements of dividend policy, which are dividend yield and dividend pay-out. Dividends are payments made by a company to a shareholder usually after a company earns a profit. For those who value profit certainty of a company, a sound dividend policy is important.

A study on dividend policy and stock price volatility in the context of UK examined the rela- tionship between dividend policy and the volatility of stock price for a period of 10 years (Hussainey, 2010). It also examined the relationship between stock price volatility and other variables such as size, growth, earnings volatility and debt. The study found that there were a significant negative relationship between the payout ratio of a firm and the volatility of its stock price and a negative relationship between dividend yield and the volatility of stock price.

Khan (2011), conducted a study on dividend policy on the stock prices by taking a sample of 131 companies listed at Karachi Stock Exchange for a period of 10 years from 2001to 2010 by using Regression Analysis. The results indicated that Profit after Tax, Earnings per Share, Stock dividend and Return on Equity have positive relation with Stock Prices and significantly explain the variations in the market prices of shares, while Retention Ratio has negative, insig- nificant relation with stock prices. Overall model is significant. Results of Fixed and Random Effect Models further validate these results. Overall results of this study indicated that Divi- dend Policy has significant positive effect on Stock Prices.

Gabriel and Ugochukwu (2012), conducted a study on volatility estimation and stock price prediction in the Nigerian stock market. This study aimed at understanding the Nigerian Stock Market with regards to volatility and prediction, to this effect the month end stock price of four major companies from the period January 2005 to December, 2009 was used as proxy. The study made use of the Auto Regressive Conditional Heteroscedasticity (ARCH) to estimate and find out the presence of volatility. The major result of the study showed stock price vola- tility could not predict their current stock price and hence volatility was insignificant and neg- ative. The results however, revealed that out of the four companies, only two companies’ stock price was predicted by volatility in their stock prices.

The research conducted by Adaramola (2012) from 1977 to 2009 reveals contradictory results. With a panel model allowing the influence of cross sectional weights, his findings show that dividend payment is insignificant. In another instance, his findings suggest that dividends have

significant information content about stock prices in Nigeria. The major finding of the study show that dividend payment is insignificant and dividends have significant information content about stock prices in Nigeria.

Sadiq et al., (2013) conducted a study on stock price volatility in relation to dividend policy: Karachi stock market. This study analyzed the stock price volatility by taking non-financial firms listed on Karachi Stock Exchange. The study was based on panel data that covers 35 firms for the period of 2001-2011. This study mainly discussed and analyzed that price vola- tility of stocks has a negative relationship with dividend yield and earnings per share. The study found out a negative but statistically insignificant relationship between earnings per share and price volatility of stocks. It also identified that there is no relationship between price volatility and earnings volatility of firms. This study has also identified a positive but statically insignif- icant relationship between sizes of firms and price volatility of stocks Mokaya et al., (2013) conducted a study on the effect of dividend policy on market share value in the banking indus- try. Management is often in a dilemma; whether to pay dividend or to retain them for future investment with implications on share value. The study sought to determine the effects of div- idend policy on the market share value in the banking industry in Kenya, using National Bank Kenya (NBK) as case for the study. The study applied an explanatory research design covering a proportionate sample of 100 shareholders. Data was collected using a structured question- naire. Both descriptive and inferential statistic were used to analyze data .the hypothesis were tested by use of Person’s moment Correlation. The study established a strong and positive correlation between dividend payout and market share value of share. There was a positive correlation between growth rate and market value of shares. There was a positive correlation between regularity of dividend declaration and market sharevalue.

Kenyoru et al., (2013) conducted a study on study on dividend policy and share price volatility in Kenya. This seeks to determine the impact of dividend policy on share price volatility. A number of theoretical mechanisms have been suggested that dividend policy vary inversely with share price volatility like the duration effect. The study used data from the actively trading companies listed in the Nairobi Securities Exchange for a period of ten (10) years from 1999- 2008. The estimation is based on multiple regression analysis between dividend policy measures (dividend Payout ratio and dividend yield) and share price volatility. The most im- portant results of the study were that payout ratio is important determinant for share price vol- atility, payout ratios reduce price volatility due to high confined of the managers of the firm in

both the stability and increase in the firms’ future earning based on public and private infor- mation.

2.1 Review of Nepalese Studies

A number of prior studies have been conducted in recent days in the area of dividend policy and stock price volatility in Nepal. As per Adhikari (2014), the most important determinants of dividend policy of Nepalese enterprises, in order, are growth rate of enterprise’s earnings, patterns of past dividends, and availability of investment opportunities. Besides, he also ar- gues that managers have more emphasis on the stable dividend policy and dividend is consid- ered to be a significant variable for stock price movement in Nepal. Despite prior studies, the industry wide and in-depth analysis of dividend policy and stock returns has not been con- ducted. Many considerations may affect a firm’s decision about its dividends, some of them as unique to that company, and some of the more general considerations are given subse- quently (Thapa & Koirala, 2017).

In context of Nepal, few researchers work has been conducted in dividend policy and share price volatility. This study has been expected to find a pathway in dividend policy to affect market price per share providing useful information for all financial scholars. More over the earlier studies on dividend need to be updated due to the rapid change in financial market of Nepal. Very few articles relating directly or indirectly with dividend and stock price are pub- lished in Nepal. Some of them, which are significant in this study, are reviewed in the table 2.

A study on “Dividend Decision and Its Impact on Stock Valuation” concluded that there is a positive relationship between cash flow and current profit and dividend percentage of share such as Bhattarai (1995). There is a positive relationship between cash flow and current profit and dividend percentage of share. There are no criteria to adopt dividend payout ratio and it is observed that there is a negative relationship between payout ratio and valuation of shares. Similarly he found that there was a negative relationship between MPS and stockholders’ re- quired rate of return also.

Manandhar (1998), studies dividend policy and value of firm in Small stock Market: A case of Nepal. The study showed dividend policy and the value of firm to identify the determinants of dividend policy in the context of Nepal. The study found that dividend per share and return on equity have positive impact on market capitalization while earnings per share, price- earnings

ratio, and dividend yield have negative impact. It was also found a positive relationship be- tween dividend and market capitalization.

Table 3

Summary of major Nepalese studies

Researchers and date

Major Finding and Conclusions

Gautam et al. (2016) Shrestha (2015) Adhikari (2014) Joshi (2012) Dhungel (2010) Chhetri (2008) Pradhan (2003)

There is significant negative relationship between dividend yield and share price volatility. The study revealed that dividend per share is positively related with market price per share. The most important determinants of dividend policy of Nepalese enterprises, in order, are growth rate of enterprise’s earnings, patterns of past dividends, and availability of investment opportunities The major findings were dividend per share is a motivating factor in the Nep- alese financial sector which is strong enough to increase MPS of the banking and non-banking firms. The study shows that dividend and retained earnings significantly explain the variation in share price. The major finding from this study was that there is no significant impact of dividend on share pricing in most of the banks. There is a significant correla- tion between market price per share and earnings per share an s well as divi- dend per share. The study revealed that there is a positive relationship between dividend and stock prices. Further, the coefficient of dividends is higher as compared to the coefficient of retained earnings. The results of the study show that dividend payment has strong relation with stock price while retained earnings have very weak relation with stock market

Manandhar (1998) Bhattarai (1995)

price. The results further explain that Nepalese stockholders give more im- portance to dividend income than capital gains. The study found that dividend per share and return on equity have positive impact on market capitalization while earnings per share, price- earnings ratio, and dividend yield have negative impact. It was also found a positive relation- ship between dividend and market capitalization. There is a positive relationship between cash flow and current profit and divi- dend percentage of share. There are no criteria to adopt dividend payout ratio and it is observed that there is a negative relationship between payout ratio and valuation of shares. Similarly he found that there was a negative relationship between MPS and stockholders’ required rate of return also.

Pradhan (2003), also carried out a study on stock market behavior in a small capital market: A case of Nepal. The study determined the relative important of dividend and retained earnings in determining the market price of stock. The study showed relationship of market equity, mar- ket value to book value, price earnings and dividend with liquidity, leverage, profitability, as- sets turnover and interests coverage. The major findings of the study were that larger stocks have larger price earnings ratios, larger ratio of market value to book value of equity, lower liquidity, lower profitability and smaller dividends. Dividend payment is more important as opposed to retained earnings in Nepal. The results revealed the customary strong dividends effect and a very weak retained earning effect indicating the attractiveness of dividend among Nepalese investors.

Further the study found that there is a positive relationship between dividend and stock prices. Further, the coefficient of dividends is higher as compared to the coefficient of retained earn- ings. Gautam et al. (2016) showed that there is significant negative relationship between divi- dend yield and share price volatility.

Shrestha (2015) revealed that dividend per share is positively related with market price per share. Similarly, size has positive impact on dividend yield. Bhandari and Pokharel (2012) concluded that commercial banks of Nepal do not show uniform trend of dividend policy. Div- idend policy practiced by commercial banks of Nepal is neither fully explained by residual

theory nor stable theory. With the development of financial institutions in Nepal, they need to follow a robust method of dividend policy so that investors can predict stock market and make a rationale investment decision.

“Comparative Study of Dividend Policy and Practices of Commercial Banks” found that there were irregularities in the dividend payment by the commercial banks of Nepal and no stability in the dividend payout ratio of the commercial banks Adhikari (2006). Thus he has recom- mended the investors to consider the select company having high profit companies for pur- chasing shares.

Chhetri (2008), conducted study on dividend and stock price: A case of Nepal. The study has explained that there are differences in financial position of high dividend paying and low div- idend paying companies. The study revealed that there is a positive relationship between divi- dend and stock prices. Further, the coefficient of dividends is higher as compared to the coef- ficient of retained earnings.

A study conducted on “Impact of Dividend on Share Pricing in Commercial Banks of Nepal” study aimed at understanding countries like Nepal, mostly look at the profitability of the firm while purchasing equity shares from the secondary market Dhungel (2010). Dividend paid to the shareholders is one of the best indicators of profitability; it is generally believed that divi- dend plays a crucial role in determining market price of the corporate share. The relationship between dividend and share price is not yet clear in the literature of finance and it is still a controversial issue in the under develop country like Nepal. This research attempts to analyze the impact of dividend on stock price moment of Nepalese banks and financial; institutions. Secondary data were obtained from the websites and published material of five commercial banks. There is significant co-relation between market price per stock and earnings per share as well as dividend per share in case of only one commercial bank but there was no significant co-relation among these various in other four commercial banks.

Joshi (2012), conducted a study on effects of dividends on stock prices in Nepal. This study aimed at understanding dividend has a strong effect than return earnings. The study examines whether this is consistent in the context of Nepal or not and the implication particularly to the banking and non-banking sectors. A descriptive and analytical research design had been ad- ministered. The secondary data were used to test this impact in order to examine the impact of dividends on stock prices; a multivariate liner regression analysis had been implied in which

current market stock.

The empirical findings of dividend researches have produced mixed results. Some found pos- itive relationship between the dividend theories and the corporate dividend policy, while others did not. The theories on behavior of corporate dividend policy suggest that dividend policy is a residual decision. The price reactions to dividend changes are stronger for high dividend- yields stock. Similarly, evidences are found on the existence of dividend signaling effects. The initiation and increase in dividends has a significant positive impact on stock price. From the above studies, it is obvious that studies were more concerned with impact of dividends on stock price and dividend policy. The findings of these studies are not unanimous across all sectors and time periods for explanatory variables and its impact on stock price. The reason behind this is the difference in methodology, sample size, and time. However, studies found that the dividend has a significant impact on market stock prices than other explanatory variables.

A number of studies on impact of dividends on stock price have been carried out in different parts of the world particularly in developed countries. Most of the earlier studies show the significant role of dividend policy on stock price. The corporate firms should follow the ap- propriate dividend policy to maximize the shareholders’ value. Dividend policy is considered as one of the important and critical variables affecting the share price. In the context of Nepal, limited studies (such as Pradhan: 2003, Manandhar: 1998) have been carried out by research scholars. Still there is a gap in the financial literature concerning the effect of dividends on stock prices particularly in banking and nonbanking sectors of Nepal. In this way there is still some ground to check the issue of stock price volatility of Nepalese firm looking at the scenario prevalent in Nepal. The change in the banking practices and use of methodology applied in many new foreign literatures to analyze this topic has made it a relevant question to be an- swered with the help of this study. In this way few prevalent gaps in previous literature will be tried to answer with the help of this study.

conclude that dividend yield had a direct cause and effect relationship with price volatility.

Another study was done by Allen and Rachim (1996), which looked at a similar relationship but used the Australia stock exchange as their target market. In their study they found, similar to Hussainey, Mgbame, Chijoke-Mgbame, and Aruoriwo’s (2011) findings, that a firm’s fi- nancial leverage had a large positive correlation to price volatility. In addition to this, they also found that earnings volatility, or the change in quarterly earnings per share had a substantial positive correlation. They cited that this finding was not surprising but sensible in the least. Allen and Rachim went on to find a significant negative correlation between dividend yield and price volatility. A&R pointed out that, because of the high similarity between dividend yield and payout ratio, the decision was made to drop the dividend yield as a variable and focus towards the payout ratio. They ended their research quoting that, even though the effects of payout ratio did have a certain level of correlation with price volatility, they felt that the find- ings were not substantial enough to warrant causation.

CHAPTER III RESEARCH METHODOLOGY

The chapter refers to the process of finding the solution of a problem. Methodology is a se- quential steps structured around research design, population, sample design, data collection procedures & instruments, and data analysis & presentation. It provides a basic framework on which the study is based on.

3.1 Research Design

For achieving the objectives, this study has adopted descriptive and analytical design.

This research includes the descriptive research which is appropriate for the research for col- lecting in-depth information on correlation between dividend policy variables and the price of share market listed in the NEPSE during the period between 2015 and 2020.

3.2 Population and sample

Total number of commercial banks (27) are the population.

Sample has focused only on the five commercial banks. Sampling is the most appropriate tech- nique for the adequate data of the observed population that would facilitate the test of hypoth- esis.

The sampling procedure would earn credence to the findings of the study (Kothari, 1994).The study found that, there 27 commercial banks out of which only the commercial banks are taking in cover with a lottery method five (probability sampling).

The following banks are the samples of the study:

Himalayan Bank Limited
1. NMB Bank
2. Nabil Bank Limited
3. Nepal Investment Bank Limited
4. Nepal SBI Bank Limited

3.3 Nature and source of data

The procedure has covered the process of data collected in this research. Although, there are two ways of collecting data; primary source and secondary source but this research is based on the secondary collected from NEPSE.

a) Secondary Source

The secondary source of data used in this project includes the data from the websites of the particular bank, articles and journals. Some of the main source are; related articles and journals, and related websites.

3.4 Methods of analysis

Mainly financial methods are applied for the purpose of this study. Appropriate statistical tools are used. Among them correlation coefficient method is used whereas, to examine the influence of dividend declaration, Wilcoxon matched-pair test is used.

Market price per share of stock of each sample bank denotes the monthly and the yearly-ended value and has been brought here from NEPSE Annual Report and denoted by MPS. It is the output of interacting forces of demand and supply at given time in relation to price and volume.

Symbolically,

MPS= Market Capitalization (Earnings after Taxes and Preference Dividends) X Earning per share

It is extracted from individual banks’ annual report and is the proportion of earning after taxes divided by the number of shares outstanding. It is the most important ingredient for determining MPPS. High value of EPS results in higher market price. In this study, it is denoted by EPS.

Symbolically,

𝐸𝑃𝑆 =

Earning Available to Common Shareholders No. of Common Stock Outstanding

Dividend per share is that portion of EPS which is distributed to the shareholders but is varied according to the company’s policy. It is also another important factor affecting MPS. In short, it is denoted by DPS which is obtained by dividing the total dividend by the number of equity shares outstanding.

Symbolically,

𝐷𝑃𝑆 =

𝑇𝑜𝑡𝑎𝑠𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑡𝑜 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠

𝑁𝑜. 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠𝑡𝑜𝑐𝑘 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

Dividend Payout Ratio

It is the portion of the earning used for the payment 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 the profit is distributed as dividend and what percentage is retained as reserve and surplus for the growth of the banks. This ratio is calculated by dividing dividend per share by the earning per share.

Thus, Symbolically

DPR =

Dividend per share (DPS) Earnings per Share (EPS)

Dividend Yield

Dividend yield is a percentage of dividends per share on market price per share. It shows that how much is the dividend per share on market price per share. It measures the dividend in relation to market value of share. This ratio is calculated by dividing dividend per share by market price of the stock.

Symbolically,

DYR = Dividend Per Share (DPS) Market Price Per Share (MPS)

Earning Yield Ratio (EYR)

This ratio shows the relationship between earning per share and market value per share. it is calculated by earning per share by market value per share.

Symbolically,

𝐸𝑌𝑅 =

Earning Per Share (EPS) Market Price Per Share (MPS)

Arithmetic Mean (A.M.)

The mean is the figure we get the total of all the values in a distribution is divided by the number of values in a distribution is divided by the number of values in the distribution. The arithmetic mean is also known as average. It should, however, be remembered that the mean can only be calculated for numerical data. The mean is an appropriate term than saying average. The mean of data is biased toward extreme values. The mean is suitable when the sores are distributed symmetrically about the center of the distribution.

AM (̅X) = Sum of total numbers (Ʃx)

Number of samples (n)

Standard Deviation (S.D.)

The measurement of the scatterings of the mass of figure in a series about an average is known as dispersion. The standard deviation measures the absolute dispersion. The greater amount of dispersion, greater the standard deviation. A small standard deviation means a high degree of uniformity of the observation as well as homogeneity of a series and vice-versa.

𝑆𝐷 =

√Ʃ(x − x̅)² n

Coefficient of variation (CV)

The coefficient of variance is the relative measure of dispersion, comparable across distribu- tion, which is defined as the ratio of the standard deviation to the mean expressed in percentage.

𝐶𝑉 = ̅X

Karl Pearson’s Correlation Coefficient (r)

If two quantities vary in such a way that movements in the one are accompanied by movement in other, these quantities are correlated. The degree of relationship between the variables under consideration is measure through the correlation analysis. Correlation analysis only helps in determining the extent to which the two variables are correlated but it does not tell us about cause and effect relationship.

Ʃ(X − x̅) (𝑌 − 𝑌̅)

𝑟 =

√Ʃ(X − x̅)² √(𝑌 − 𝑌̅)²

T-Statistics (t)

To test the validity of our assumption, if the sample size is less than 30, t-test is used. For applying t-test in context of small sample the t-value is calculated first and compared with t- value on table at certain level of significance for given degree of freedom. If calculated value of ‘t’ exceeds the tabulated value (say 0.05) we can say that difference is significant at 5% level and vice-versa.

√

𝑡 =

𝑋̅ − 𝜇₀

𝑠

⁄ 𝑛

Wilcoxon Matched Pair Method

The Wilcoxon signed-ranks test is a non-parametric equivalent of the paired t-test. It is most commonly used to test for a difference in the mean (or median) of paired observations whether measurements on pairs of units or before and after measurements on the same unit.

CHAPTER IV RESULTS AND DISCUSSION

This is an analytical chapter, where an attempt has been made to analyze and evaluate the data collected. To analyze the data collected various presentation and interpretation is done in order to fulfill the objective of this study. Presentation and analysis of data is the major part of this research study. Data are extracted from secondary source. The financial variables and statistical tools discussed in “Research Methodology”, secondary data is analyzed to achieve the objec- tives of the study.

In this chapter, the relevant data and information on dividend policy of the selected companies are presented and analyzed comparatively keeping the objective of the study in mind. To being with analysis of dividend payment practices of the banks is done at first. In the second part of the chapter, analysis of impact of dividend declaration on market price of share and relationship of dividend with other key variables are done with the help of the statistical tools mentioned in the chapter. In the third part, hypothetical analysis is done using Wilcoxon matched pairs method.

4.1 Analysis of Financial Indicators and Variables

In this study, descriptive statistics includes the information of market price per share, earning per share, dividend per share, dividend payout ratio, earning yield and dividend yield of each sample banks for the period of 2015/16 to 2019/20 which has been presented in table. With the help of descriptive analysis, the classification of sample banks and comparison of sample banks based on sector is presented. The mean value of sample banks under sector is computed to make comparison of sectors. The mean value gives the result of the average of each sector.

4.1.1 Matched-Pair Analysis of dividend declaration on MPS. Table 3

Wilcoxon matched-pair test of NABIL Bank

Dividend Declaration Date: 12/3/2018, MRP: 863
Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	Difference (X-Y)	Rank	S +
2-Dec-18	865	1	4-Dec-18	860	5	1	1
29-Nov-18	882.14	2	5-Dec-18	851	31.14	2	2
28-Nov-18	889	3	6-Dec-18	850	39	6	6
27-Nov-18	889	4	9-Dec-18	852	37	4.5	4.5
26-Nov-18	888.58	5	10-Dec-18	853	35.58	3	3
25-Nov-18	898.76	6	11-Dec-18	855	43.76	7	7
22-Nov-18	900.34	7	12-Dec-18	851	49.34	11	11
21-Nov-18	906	8	13-Dec-18	847	59	13.5	13.5
20-Nov-18	902	9	16-Dec-18	853	49	9	9
19-Nov-18	917	10	17-Dec-18	862	55	12	12
18-Nov-18	917	11	18-Dec-18	858	59	13.5	13.5
15-Nov-18	927	12	19-Dec-18	850	77	18	18
14-Nov-18	919	13	20-Dec-18	851	68	15	15
13-Nov-18	919	14	23-Dec-18	870	49	9	9
12-Nov-18	905	15	24-Dec-18	868	37	4.5	4.5
11-Nov-18	911	16	25-Dec-18	862	49	9	9
6-Nov-18	946	17	26-Dec-18	864	82	20	20
5-Nov-18	938	18	27-Dec-18	865	73	16	16
4-Nov-18	940	19	30-Dec-18	866	74	17	17
1-Nov-18	946	20	31-Dec-18	860	86	19	19
							ƩS+ = 210

Source: http://www.nepalstock.com/todaysprice

The measurement methodology with reference to Table 3 reveals that the measured value of Z suggests that the value of NABIL is 3.9199, which is greater than the table value of 1.645 at a 5 % significance level. This implies denying the null hypothesis, claiming that the question of bonuses has a substantial effect on the market share price. This means that the market price of the shares of NABIL reacts to the announcement of the dividend on the stocks.

Table 4

Wilcoxon matched-pair test of NMB Bank

Dividend Declaration Date: 11/22/2018, MRP: 356
Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	Difference (X-Y)	Rank	S +
21-Nov-18	340	1	25-Nov-18	356.55	-16.55	14	14
20-Nov-18	342	2	26-Nov-18	357.03	-15.03	12	12
19-Nov-18	344	3	27-Nov-18	358	-14	11	11
18-Nov-18	344	4	28-Nov-18	359.94	-15.94	13	13
15-Nov-18	346	5	29-Nov-18	359.88	-13.88	10	10
14-Nov-18	349	6	2-Dec-18	357	-8	4	4
13-Nov-18	349	7	3-Nov-18	358	-9	5	5
12-Nov-18	346	8	4-Dec-18	359	-13	9	9
11-Nov-18	349	9	5-Dec-18	351	-2	1.5	1.5
5-Nov-18	351	10	6-Dec-18	356	-5	3	3
4-Nov-18	347	11	9-Dec-18	359	-12	8	8
1-Nov-18	351	12	10-Dec-18	353	-2	1.5	1.5
31-Oct-18	353	13	11-Dec-18	363	-10	6.5	6.5
30-Oct-18	353	14	12-Dec-18	363	-10	6.5	6.5
29-Oct-18	349	15	13-Dec-18	370	-21	18	18
28-Oct-18	352	16	16-Dec-18	374	-22	19	19
25-Oct-18	355	17	17-Dec-18	384	-29	20	20
24-Oct-18	360	18	18-Dec-18	378	-18	15.5	15.5
23-Oct-18	362	19	19-Dec-18	380	-18	15.5	15.5
22-Oct-18	362	20	20-Dec-18	381	-19	17	17
							ƩS+ = 210

Source: http://www.nepalstock.com/todaysprice

The calculation procedure with reference to Table 4 shows that the determined Z value shows that the NMB value is 3.9199, which is more than the table value of 1.645 at the 5 % level of significant. This reflects embracing the Alternative Hypothesis, indicating that the benefit issue seems to have a major effect on the market share price. This ensures that the market price of the shares of NMB reacts to the stock dividend declaration.

Table 5

Wilcoxon matched-pair test of Nepal Investment Bank Limited

Dividend Declaration Date 12/10/2018, MRP: 648
Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	Difference (X-Y)	Rank	S +	S-
9-Dec-18	619	1	11-Dec-18	650	-31	2		2
6-Dec-18	619	2	12-Dec-18	649	-30	1		1
5-Dec-18	617	3	13-Dec-18	652	-35	3		3
4-Dec-18	619	4	16-Dec-18	668	-49	8		8
3-Dec-18	617	5	17-Dec-18	671	-54	10		10
2-Dec-18	617	6	18-Dec-18	665	-48	6		6
29-Nov-18	628	7	19-Dec-18	664	-36	4		4
28-Nov-18	629	8	20-Dec-18	666	-37	5		5
27-Nov-18	628.62	9	23-Dec-18	677	-48.38	7		7
26-Nov-18	626.13	10	24-Dec-18	676	-49.87	9		9
25-Nov-18	626	11	25-Dec-18	681	-55	11		11
22-Nov-18	632	12	26-Dec-18	567	65	14	14
21-Nov-18	629	13	27-Dec-18	571	58	12	12
20-Nov-18	629	14	30-Dec-18	568	61	13	13
19-Nov-18	632	15	31-Dec-18	557	75	16	16
18-Nov-18	635	16	1-Jan-19	555	80	17	17
15-Nov-18	635	17	2-Jan-19	552	83	19.5	19.5
14-Nov-18	633	18	3-Jan-19	550	83	19.5	19.5
13-Nov-18	630	19	6-Jan-19	548	82	18	18
12-Nov-18	622	20	7-Jan-19	551	71	15	15
							ƩS+ = 144	ƩS- = 66

Source: http://www.nepalstock.com/todaysprice

The method of evaluation on the subject of Table 5 indicates that the calculated value of Z indicates the value of NIBL is 1.4559 which is less than the desk fee of 1.645 at a 5% level of significance. These doesn’t shows ejecting the Null hypothesis, declaring that there may be the sizable effect of bonus difficulty within side the marketplace rate of percentage. In this method, the market Price of NIB percentage doesn’t responds to the assertion of the inventory dividend.

Table 6

Wilcoxon matched-pair test of Himalayan Bank Limited

Dividend Declaration Date: 12/19/2018, MRP: 490
Date Before	Stock Price Be- fore (X)	Be- fore/ After Days	Date After	Stock Price After (Y)	Difference (X-Y)	Rank	S +	S-
18-Dec-18	526	1	20-Dec-18	495	31	12	12
17-Dec-18	526	2	23-Dec-18	503	23	11	11
16-Dec-18	528	3	24-Dec-18	506	22	10	10
13-Dec-18	506	4	25-Dec-18	502	4	3.5	3.5
12-Dec-18	511	5	26-Dec-18	516	-5	5		5
11-Dec-18	504	6	27-Dec-18	520	-16	9		9
10-Dec-18	499	7	30-Dec-18	514	-15	8		8
9-Dec-18	480	8	31-Dec-18	479	1	1	1
6-Dec-18	477	9	1-Jan-19	475	2	2	2
5-Dec-18	479	10	2-Jan-19	475	4	3.5	3.5
4-Dec-18	483	11	3-Jan-19	474	9	6	6
3-Dec-18	486	12	6-Jan-19	472	14	7	7
2-Dec-18	490	13	7-Jan-19	458	32	13	13
29-Nov-18	500	14	8-Jan-19	458	42	14	14
28-Nov-18	510	15	9-Jan-19	460	50	17	17
27-Nov-18	505	16	10-Jan-19	460	45	15	15
26-Nov-18	505	17	13-Jan-19	458	47	16	16
25-Nov-18	509.69	18	14-Jan-18	456	53.69	19	19
22-Nov-18	513	19	15-Nov-18	460	53	18	18
21-Nov-18	520	20	16-Nov-18	461	59	20	20
							ƩS+ = 188	ƩS- = 22

Source: http://www.nepalstock.com/todaysprice

The strategy for assessment with respect to Table 6 shows that the decided assessment of Z shows the assessment of HBL is 3.0986 which are more than the table assessment of 1.645 at 5% level of significance. This proposes excusing the Null hypothesis, communicating that there is basic impact of remuneration issue in the market cost of offer. This infers the market Price of HBL offer responds to the introduction of the stock benefit.

Table 7

Wilcoxon matched-pair test of Nepal SBI Bank

Dividend Declaration Date: 12/16/2018, MRP: 408
Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	Difference (X-Y)	Rank	S +	S-
13-Dec-18	404	1	17-Dec-18	405	-1	2		2
12-Dec-18	396	2	18-Dec-18	404	-8	5.5		5.5
11-Dec-18	398	3	19-Dec-18	403	-5	3		3
10-Dec-18	402	4	20-Dec-18	402	0	1	1
9-Dec-18	394	5	23-Dec-18	416	-22	9		9
6-Dec-18	394	6	24-Dec-18	412	-18	7		7
5-Dec-18	389	7	25-Dec-18	410	-21	8		8
4-Dec-18	390	8	26-Dec-18	429	-39	15		15
3-Dec-18	398	9	27-Dec-18	427	-29	13		13
2-Dec-18	401	10	30-Dec-18	425	-24	10		10
29-Nov-18	412	11	31-Dec-18	420	-8	5.5		5.5
28-Nov-18	416.05	12	1-Jan-19	424	-7.95	4		4
27-Nov-18	419	13	2-Jan-19	394	25	11	11
26-Nov-18	419	14	3-Jan-19	391	28	12	12
25-Nov-18	425	15	6-Jan-19	389	36	14	14
22-Nov-18	440	16	7-Jan-19	392	48	16	16
21-Nov-18	440	17	8-Jan-19	390	50	17	17
20-Nov-18	443	18	9-Jan-19	392	51	18	18
19-Nov-18	448	19	10-Jan-19	387	61	19	19
18-Nov-18	455	20	13-Jan-19	388	67	20	20
							ƩS+ = 128	ƩS- = 82

Source: http://www.nepalstock.com/todaysprice

The method of evaluation on the subject of Table 7 indicates that the calculated value of Z indicates the value of SBI is 0.8586 which is less than the desk fee of 1.645 at a 5% level of significance. These doesn’t shows ejecting the Null hypothesis, declaring that there may be the sizable effect of bonus difficulty within side the marketplace rate of percentage. In this method, the market Price of SBI percentage doesn’t respond to the assertion of the inventory dividend.

4.1.2 Overall statistics of selected sample Banks

Table 8

Overall statistics of selected sample banks

Sample Bank	∑S(+)	∑S(-)	E(T)	σT	T	T-E(T)	Z- value	IZI Value	T-value
NABIL	210		105	26.786	0	-105	-3.919	3.919	1.645
NMB	210		105	26.786	0	-105	-3.919	3.919	1.645
NIBL	144	66	105	26.786	66	-39	-1.455	1.455	1.645
HBL	188	22	105	26.786	22	-83	-3.098	3.098	1.645
SBI	128	82	105	26.786	82	-23	-0.858	0.858	1.645

After calculating Z-values for various banks by Wilcoxon matched pairs test, they are com- pared with the tabulated value at a 5% level of significance. The calculated value of NABIL, NMB, NIBL, HBL, and SBI is 3.9199, 3.9199, 1.4559, 3.0986, and 0.8586 respectively. NA-

BIL Bank, NMB Bank, and Himalayan Bank Limited calculated values are greater than the tabulated value of Z (1.645) at a 5% significance level. However, if the calculated value is more than the tabulated value, the null hypothesis is rejected and the alternative hypothesis is ac- cepted i.e. there is a significant difference in that variable after the bonus share issue. It means whenever the company issues a bonus share, its positive impact on the market price per share.

Whereas Nepal Investment Bank Limited (NIBL) and Nepal SBI Bank (SBI) have calculated values less than the tabulated value of z (1.645) is not significance level 5%. Here, if the cal- culated value is less than the tabulated value, the null hypothesis is accepted i.e. there is no significant difference in that variable after the bonus share issue. It means whenever the com- pany issues a bonus share, its negative impact on the market price per share.

For Calculation of Overall Statistics:

Mean of T (E(T)) =

𝑛(𝑛+1) 4

T = lowest value taken from ∑S(+) and ∑S(-)

S.D. of T (σT) = √𝑛(𝑛+1) (2𝑛+1)

Then,

[𝑇−𝐸(𝑇)]

Z =

𝜎𝑇

T value is 1.645, Compare Z value with T value for significance level at 5%. If Z > 1.645, significance at 5%.

Z< 1.645, is not significant at 5%. Confidence level is low.

4.1.3 Association between Dividend Declaration and Market Stock Price

Table 9

Association between Dividend Declaration and Market Stock Price NABIL Bank

Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	XY	X2	Y2
2-Dec-18	865	1	4-Dec-18	860	743900	748225	739600
29-Nov-18	882.14	2	5-Dec-18	851	750701.14	778170.9796	724201
28-Nov-18	889	3	6-Dec-18	850	755650	790321	722500
27-Nov-18	889	4	9-Dec-18	852	757428	790321	725904
26-Nov-18	888.58	5	10-Dec-18	853	757958.74	789574.4164	727609
25-Nov-18	898.76	6	11-Dec-18	855	768439.8	807769.5376	731025
22-Nov-18	900.34	7	12-Dec-18	851	766189.34	810612.1156	724201
21-Nov-18	906	8	13-Dec-18	847	767382	820836	717409
20-Nov-18	902	9	16-Dec-18	853	769406	813604	727609
19-Nov-18	917	10	17-Dec-18	862	790454	840889	743044
18-Nov-18	917	11	18-Dec-18	858	786786	840889	736164
15-Nov-18	927	12	19-Dec-18	850	787950	859329	722500
14-Nov-18	919	13	20-Dec-18	851	782069	844561	724201
13-Nov-18	919	14	23-Dec-18	870	799530	844561	756900
12-Nov-18	905	15	24-Dec-18	868	785540	819025	753424
11-Nov-18	911	16	25-Dec-18	862	785282	829921	743044
6-Nov-18	946	17	26-Dec-18	864	817344	894916	746496
5-Nov-18	938	18	27-Dec-18	865	811370	879844	748225
4-Nov-18	940	19	30-Dec-18	866	814040	883600	749956
1-Nov-18	946	20	31-Dec-18	860	813560	894916	739600
	ƩX= 18205.82			ƩY= 17148	ƩXY= 15610980.02	ƩX²= 16581885.05	ƩY²= 14703612

𝑛 ∑ 𝑋𝑌 − ∑ 𝑋. ∑ 𝑌

𝑟 =

√[𝑛 ∑ 𝑋² − (∑ 𝑋)²]. [𝑛 ∑ 𝑌² − (∑ 𝑌)²]

𝑟 = 0.44

The calculate correlation figure describes the relation between the concern of bonus shares before and after during the course of the analysis. NABIL’s coefficient of correlation (r) is 0.44. This figure shows that there is a strong association between before and after the bonus share issue of NABIL Bank. The positive association revealed by their correlation coefficient points

out that the question of the incentive share takes place in the upward direction of the corpora- tion’s price per stock of the market.

Table 10

Association between Dividend Declaration and Market Stock Price NMB Bank

Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	XY	X2	Y2
21-Nov-18	340	1	25-Nov-18	356.55	121227	115600	127127.9025
20-Nov-18	342	2	26-Nov-18	357.03	122104.26	116964	127470.4209
19-Nov-18	344	3	27-Nov-18	358	123152	118336	128164
18-Nov-18	344	4	28-Nov-18	359.94	123819.36	118336	129556.8036
15-Nov-18	346	5	29-Nov-18	359.88	124518.48	119716	129513.6144
14-Nov-18	349	6	2-Dec-18	357	124593	121801	127449
13-Nov-18	349	7	3-Nov-18	358	124942	121801	128164
12-Nov-18	346	8	4-Dec-18	359	124214	119716	128881
11-Nov-18	349	9	5-Dec-18	351	122499	121801	123201
5-Nov-18	351	10	6-Dec-18	356	124956	123201	126736
4-Nov-18	347	11	9-Dec-18	359	124573	120409	128881
1-Nov-18	351	12	10-Dec-18	353	123903	123201	124609
31-Oct-18	353	13	11-Dec-18	363	128139	124609	131769
30-Oct-18	353	14	12-Dec-18	363	128139	124609	131769
29-Oct-18	349	15	13-Dec-18	370	129130	121801	136900
28-Oct-18	352	16	16-Dec-18	374	131648	123904	139876
25-Oct-18	355	17	17-Dec-18	384	136320	126025	147456
24-Oct-18	360	18	18-Dec-18	378	136080	129600	142884
23-Oct-18	362	19	19-Dec-18	380	137560	131044	144400
22-Oct-18	362	20	20-Dec-18	381	137922	131044	145161
	ƩX= 7004			ƩY= 7277.4	ƩXY= 2549439.1	ƩX²= 2453518	ƩY²= 2649968.741

𝑛 ∑ 𝑋𝑌 − ∑ 𝑋. ∑ 𝑌

𝑟 =

√[𝑛 ∑ 𝑋² − (∑ 𝑋)²]. [𝑛 ∑ 𝑌² − (∑ 𝑌)²]

𝑟 = 0.75

The calculate correlation figure describes the relation between the concern of bonus shares before and after during the course of the analysis. NMB’s coefficient of correlation (r) is 075. This figure shows that there is a strong association between before and after the bonus share

issue of NMB Bank. The positive association revealed by their correlation coefficient points out that the question of the incentive share takes place in the upward direction of the corpora- tion’s price per stock of the market.

Table 11

Association between Dividend Declaration and Market Stock Price Nepal Investment Bank Limited

Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	Difference (X-Y)	XY	X2	Y2
9-Dec-18	619	1	11-Dec-18	650	-31	402350	383161	422500
6-Dec-18	619	2	12-Dec-18	649	-30	401731	383161	421201
5-Dec-18	617	3	13-Dec-18	652	-35	402284	380689	425104
4-Dec-18	619	4	16-Dec-18	668	-49	413492	383161	446224
3-Dec-18	617	5	17-Dec-18	671	-54	414007	380689	450241
2-Dec-18	617	6	18-Dec-18	665	-48	410305	380689	442225
29-Nov-18	628	7	19-Dec-18	664	-36	416992	394384	440896
28-Nov-18	629	8	20-Dec-18	666	-37	418914	395641	443556
27-Nov-18	628.62	9	23-Dec-18	677	-48.38	425575.74	395163.1044	458329
26-Nov-18	626.13	10	24-Dec-18	676	-49.87	423263.88	392038.7769	456976
25-Nov-18	626	11	25-Dec-18	681	-55	426306	391876	463761
22-Nov-18	632	12	26-Dec-18	567	65	358344	399424	321489
21-Nov-18	629	13	27-Dec-18	571	58	359159	395641	326041
20-Nov-18	629	14	30-Dec-18	568	61	357272	395641	322624
19-Nov-18	632	15	31-Dec	557	75	352024	399424	310249
18-Nov-18	635	16	1-Jan-19	555	80	352425	403225	308025
15-Nov-18	635	17	2-Jan-19	552	83	350520	403225	304704
14-Nov-18	633	18	3-Jan-19	550	83	348150	400689	302500
13-Nov-18	630	19	6-Jan-19	548	82	345240	396900	300304
12-Nov-18	622	20	7-Jan-19	551	71	342722	386884	303601
	ƩX= 12522.75			ƩY= 12338		ƩXY= 7721076.62	ƩX²= 7841705.881	ƩY²= 7670550

𝑛 ∑ 𝑋𝑌 − ∑ 𝑋. ∑ 𝑌

𝑟 =

√[𝑛 ∑ 𝑋² − (∑ 𝑋)²]. [𝑛 ∑ 𝑌² − (∑ 𝑌)²]

𝑟 = −0.63

The calculate correlation figure describes the relation between the concern of bonus shares before and after during the course of the analysis. NIBL’s coefficient of correlation (r) is -0.63. This figure shows that there is a strong association between before and after the bonus share issue of Nepal Investment Bank Limited. The negative association revealed by their correlation coefficient points out that the question of the incentive share takes place in the downward di- rection of the corporation’s price per stock of the market.

Table 12

Association between Dividend Declaration and Market Stock Price Himalayan Development Bank

Date Before	Stock Price Before (X)	Before/ After Days	Date After	Stock Price After (Y)	XY	X2	Y2
18-Dec-18	526	1	20-Dec-18	495	260370	276676	245025
17-Dec-18	526	2	23-Dec-18	503	264578	276676	253009
16-Dec-18	528	3	24-Dec-18	506	267168	278784	256036
13-Dec-18	506	4	25-Dec-18	502	254012	256036	252004
12-Dec-18	511	5	26-Dec-18	516	263676	261121	266256
11-Dec-18	504	6	27-Dec-18	520	262080	254016	270400
10-Dec-18	499	7	30-Dec-18	514	256486	249001	264196
9-Dec-18	480	8	31-Dec-18	479	229920	230400	229441
6-Dec-18	477	9	1-Jan-19	475	226575	227529	225625
5-Dec-18	479	10	2-Jan-19	475	227525	229441	225625
4-Dec-18	483	11	3-Jan-19	474	228942	233289	224676
3-Dec-18	486	12	6-Jan-19	472	229392	236196	222784
2-Dec-18	490	13	7-Jan-19	458	224420	240100	209764
29-Nov-18	500	14	8-Jan-19	458	229000	250000	209764
28-Nov-18	510	15	9-Jan-19	460	234600	260100	211600
27-Nov-18	505	16	10-Jan-19	460	232300	255025	211600
26-Nov-18	505	17	13-Jan-19	458	231290	255025	209764
25-Nov-18	509.69	18	14-Jan-18	456	232418.64	259783.8961	207936
22-Nov-18	513	19	15-Nov-18	460	235980	263169	211600
21-Nov-18	520	20	16-Nov-18	461	239720	270400	212521
	ƩX= 10057.69			ƩY= 9602	ƩXY= 4830452.64	ƩX²= 5062767.896	ƩY²= 4619626

𝑛 ∑ 𝑋𝑌 − ∑ 𝑋. ∑ 𝑌

𝑟 =

√[𝑛 ∑ 𝑋² − (∑ 𝑋)²]. [𝑛 ∑ 𝑌² − (∑ 𝑌)²]

𝑟 = 0.25

The calculate correlation figure describes the relation between the concern of bonus shares before and after during the course of the analysis. HBL’s coefficient of correlation (r) is 0.25. This figure shows that there is a strong association between before and after the bonus share issue of Himalayan Bank Limited. The positive association revealed by their correlation coef- ficient points out that the question of the incentive share takes place in the upward direction of the corporation’s price per stock of the market.

Table 13

Association between Dividend Declaration and Market Stock Price Nepal SBI Bank

Date Before	Stock Price (X)	Before/ After Days	Date After	Stock Price (Y)	XY	X2	Y2
13-Dec-18	404	1	17-Dec-18	405	163620	163216	164025
12-Dec-18	396	2	18-Dec-18	404	159984	156816	163216
11-Dec-18	398	3	19-Dec-18	403	160394	158404	162409
10-Dec-18	402	4	20-Dec-18	402	161604	161604	161604
9-Dec-18	394	5	23-Dec-18	416	163904	155236	173056
6-Dec-18	394	6	24-Dec-18	412	162328	155236	169744
5-Dec-18	389	7	25-Dec-18	410	159490	151321	168100
4-Dec-18	390	8	26-Dec-18	429	167310	152100	184041
3-Dec-18	398	9	27-Dec-18	427	169946	158404	182329
2-Dec-18	401	10	30-Dec-18	425	170425	160801	180625
29-Nov-18	412	11	31-Dec-18	420	173040	169744	176400
28-Nov-18	416.05	12	1-Jan-19	424	176405.2	173097.6025	179776
27-Nov-18	419	13	2-Jan-19	393	165086	175561	155236
26-Nov-18	419	14	3-Jan-19	391	163829	175561	152881
25-Nov-18	425	15	6-Jan-19	389	165325	180625	151321
22-Nov-18	440	16	7-Jan-19	392	172480	193600	153664
21-Nov-18	440	17	8-Jan-19	390	171600	193600	152100
20-Nov-18	443	18	9-Jan-19	392	173656	196249	153664
19-Nov-18	448	19	10-Jan-19	387	173376	200704	149769
18-Nov-18	455	20	13-Jan-19	388	176540	207025	150544
	ƩX= 8283.05			ƩY= 8100	ƩXY= 3350342.2	ƩX²= 3438904.603	ƩY²= 3284504

𝑛 ∑ 𝑋𝑌 − ∑ 𝑋. ∑ 𝑌

𝑟 =

√[𝑛 ∑ 𝑋² − (∑ 𝑋)²]. [𝑛 ∑ 𝑌² − (∑ 𝑌)²]

𝑟 = −0.73

The calculate correlation figure describes the relation between the concern of bonus shares before and after during the course of the analysis. HBL’s coefficient of correlation (r) is -0.73. This figure shows that there is a strong association between before and after the bonus share issue of Nepal SBI Bank. The negative association revealed by their correlation coefficient

points out that the question of the incentive share takes place in the downward direction of the corporation’s price per share of the market.

4.1.1 Analysis of Mean, Standard Deviation and Coefficient of Variance of HBL

The descriptive statistics are supported by bar diagram describing the related variable i.e. MPS, EPS, DPS, and DPR.

Table 14

Descriptive statistics of Nabil Bank

Year	MPS	EPS	DPS	DPR
2019/20	921	49.51	22	0.444
2018/2019	1523	59.86	18	0.301
2017/2018	2344	59.27	15	0.253
2016/2017	1910	57.24	6.84	0.119
2015/2016	2535	83.68	45	0.537
AM	1846.6	61.912	21.368	0.331
SD	649.379	12.851	14.333	0.163
CV	0.351	0.207	0.670	0.494

Source: Annual Reports of NABIL from 2015/16 to 2019/20.

MPS, DPS, EPS and DPR variables was highest at FY 2015/16. All the variables of Nabil bank are in fluctuating ration from the fiscal year 2015/16 to 2019/20. All variable have increased in one fiscal year and decreased in next fiscal year but different variable were increased and de- creased in different fiscal year nit at the same time.

Mean and Standard Deviation of NMB

HBL indicates the descriptive statistics are supported by table and bar diagram describing the related variable i.e. MPS, EPS, DPS, and DPR.

Table 15

Descriptive statistics of NMB Bank Ltd.

Year	MPS	EPS	DPS	DPR
2019/20	358	28.67	20	0.697
2018/2019	545	26.88	0.19	0.007
2017/2018	810	27.78	1	0.035
2016/2017	507	25.05	0.42	0.016
201/15/2016	515	20.5	1.05	0.051
AM	547	25.776	4.532	0.161
SD	163.949	3.239	8.654	0.301
CV	0.299	0.125	1.909	1.855

Source: Annual Reports of NMB from 2015/16 to 2019/20.

Table 15 shows the different variables of NMB bank from the year 2015/16 to 2019/2020. Compared to the FY 2015/16 the MPS of NMB Bank has decrease in FY 2019/2020, but the MPS from FY 2015/16 to 2019/2020 is in fluctuating ratio one year increasing and another year decreasing. Where, EPS had increasing ratio in every year and DPS was also increased 20 times in last fiscal year but the ratio was fluctuating. DPR had also increased in the final fiscal year having fluctuating trend from FY 2015/16 to 2019/2020.

Mean and Standard Deviation of NIBL

EBL indicates the descriptive statistics are supported by table and bar diagram describing the related variable i.e. MPS, EPS, DPS, DPR, etc.

Table 16

Descriptive statistics of NIBL

Year	MPS	EPS	DPS	DPR
2019/20	621	35.57	22	0.618
2018/2019	770	29.93	25	0.835
2017/2018	1040	29.93	21	0.701
2016/2017	704	30.9	1.7	0.055
201/15/2016	980	40.7	25	0.614
AM	823	33.406	18.94	0.564
SD	179.938	4.699	9.801	0.298
CV	0.218	0.141	0.517	0.528

Source: Annual Reports of NIBL from 2015/16 to 2019/20.

Table 16 shows all the statistics variables of NIBL were in fluctuating ratio from FY 2015/16 to 2019/20. In FY 2017/18 MPS, EPS and DPS had the highest in compared to other FY, where in FY 2016/17 DPR was highest. All the variables have fluctuating in different FY

Table 17

Descriptive statistics of Himalayan Bank Ltd.

Year	MPS	EPS	DPS	DPR
2019/20	551	23.11	10.79	0.466
2018/2019	886	35.15	1.32	0.037
2017/2018	1500	43.03	1.58	0.036
2016/2017	813	33.37	7.1	0.212
2015/2016	941	33.1	6.05	0.182
AM	938.2	33.552	5.368	0.187
SD	347.832	7.101	3.987	0.176
CV	0.371	0.211	0.742	0.939

Source: Annual Reports of HBL from 2015/16 to 2019/20.

The table 17 shows the fluctuating trend of dividend per share but at the last fiscal year 2019/20 the DPS is highest of all fiscal year, whereas the market price per share is in fluctuating ratio from fiscal year 2015/16 to 2019/20. EPS of HBL is fluctuating trend. Similarly, the DPR of HBL is in fluctuating trend one fiscal year it have decreased and then increasing in another year and again decreasing order.

Mean and Standard Deviation of SBI

KBL indicates the descriptive statistics are supported by table and bar diagram describing the related variable i.e. MPS, EPS, DPS, DPR, etc.

Table 18

Descriptive statistics of SBI

Year	MPS	EPS	DPS	DPR
2019/20	551	23.11	10.79	0.466
2018/2019	886	35.15	1.32	0.037
2017/2018	1500	43.03	1.58	0.036
2016/2017	813	33.37	7.1	0.212
2015/2016	941	33.1	6.05	0.182
AM	938.2	33.552	5.368	0.187
SD	347.832	7.101	3.987	0.176
CV	0.371	0.211	0.742	0.939
CV	0.001	0.029	0.186	5.337

Source: Annual Reports of SBI from 2015/16 to 2019/20.

Table 18 shows the data of various variables as MPS, EPS, DPS, DPR, of SBI Bank from the fiscal year 2070/71 to 2019/20. All the variable are in fluctuating ration from fiscal year 2015/16 to 2019/20 and all the variable are fluctuating alternative year one variable one time increasing then another variable is decreasing or some time all variables increasing and some- times all variables were decreased.

4.2 Analysis of Statistical Indicators and Variables

Correlation Coefficient among Variables

Correlation analysis is a statistical tool which studies the relationship between four variables. Correlation analysis involves various methods and techniques which is used for studying and measuring the extent of the relationship between two variables, whether a positive or negative relationship exist between four variables. It also indicates whether the relationship is significant or insignificant and the correlation analysis is used to identify the relationship between MPS, EPS, DPS, and DPR.

Correlation coefficient formulas are used to find how strong a relationship is between data. The formulas return a value between -1 and 1, where:

1 indicates a strong positive relationship.

-1 indicates a strong negative relationship.

A result of zero indicates no relationship at all Table 19

Correlation coefficient between MPS and other variables

	MPS	EPS	DPS	DPR
MPS	1
EPS	0.8643 (**)	1
DPS	0.3337(*)	0.5852(**)	1
DPR	-0.065	0.1238(*)	0.8411(**)	1

Note: The results were derived from gretl, version 1.94.

*: Correlation is significant at the level ±0.05 (2 tailed).

: Correlation is significant at the level ±00.1 (2 tailed).

In the above table, the data reflects significant correlations between market price per share, earning per share, dividend per share, and dividend payout ratio over each other. As the corre- lation between, EPS and MPS is 0.863 that shows positively significant relationship in between. Again the correlation coefficient between MPS and DPS is 0.3337, it is also considered as positive relationship between MPS and DPS as well. Whereas, correlation coefficient of MPS and DPR is considered as negative due to -0.065 value. The correlation relation between DPS & EPS, DPR & EPS, and DPR & DPS is also positive with the value, 0.5852, 0.1238, and 0.8411 respectively.

As the hypothesis was made about negative/positive relationship between MPS and other Var- iable, the correlation coefficient result shows there is Positive relation between MPS & DPS and MPS &EPS.

Table 20

Regression Analysis

Variable	Coefficient	SE	t-ratio	p-value
Constant	-624.859	313.641	-1.992	0.0595*
EPS	48.9413	8.9556	5.465	2.02e- 05***
DPS	-33.8424	20.9068	-1.619	0.1204
DPR	744.341	731.088	1.018	0.3202

R²= 0.801730 Adj. R² = 0.773406

F(3, 21) = 28.30545

Note: The results were derived from gretl, version 1.94.

**: Significant at the 0.01 level.

*: Significant at the 0.05 level

In order to understand the effect on MPS, a linear multiple regression models were used in the table 10 represents the multiple correlation matrix and multiple regression technique have been used to study the effect of dividend policies & practices of on its MPS. In this study EPS, DPS, and DPR have been used as the explanatory variables and MPS used as dependent variable. In this analysis, the correlation matrix representing correlation coefficient between the explana- tory variables and MPS. The model for the dividend policies and practices and firms market price per share (MPS) is selected on the basis of strong diagnostics and high value for the R- squared the result is represented in table 10. The table exhibiting the relationship between the dependent variable MPS and all the independent variables taken together and the impact of these independent variables on the market value of shares or shareholders wealth of the firm. When DPS increased by one unit, DPR of the company increased by 744.341 units which was

statistically significant at 5% level of significance. It reveals that the market value of share (MPS) or shareholders wealth of the company was highly influenced by EPS, DPS, and DPR.

4.3 Major Findings

This area incorporates the key discoveries and furthermore improves an investigation of this theme in satisfying the goal of this examination.

As per the Table, it has outlined that there is no reliable consequence of all example organiza- tions which were thought about. By Wilcoxon matched pairs test, we found that the determined valve of NABIL, NMB, HBL, and last SBI is 3.9919, 3.9919, 1.455, 3.098, and 0.858 individ- ually which are more than the table estimation of 1.645 at 5% degree of freedom. In any case, if the determined worth is more than the arranged worth, the invalid speculation is dismissed and the elective theory is acknowledged. In the wake of figuring the time of – 20 days and +20 days on the estimation of MPS after and reward share issue, there is a positive connection between completely examined banks.

What we have discovered from the count is that even after the reward share issue in six example banks, there will be fewer MPS decrease in the share value of NABIL and NMB. Seeing MPS cost changes after reward share changes the best NABIL and NMB was seen. The good condi- tion of HBL looked satisfactory. At that point NABIL, NMB, HBL, and last SBI came sepa- rately. Albeit the determined estimation of the 5 example banks is a little lower unique, the estimation of them is more than the arranged worth, so we can call the exhibition of these banks great.

The relationship between pre and post bonus distribution on MPS is partly satisfactory from the correlation estimate. The correlation coefficient (r) is 0.44, 0.75, -0.63, 0.25, and -0.73, for NABIL, NMB, HBL, and last SBI respectively. This figure shows the positive relationship between NABIL, NMB, and HBL banks’ MPS before & after bonus share problem. Yet there is a negative link between the two banks (NIBL and SBI). It means that when bonus sharing adjustment, MPS fluctuates strongly when these two banks share worth.

The value of and SBI is smaller than other banks out of six sample banks in the Wilcoxon Paired Pairs test and the value of these two banks is also negative in the correlation coefficient. This means as opposed to other banks including such NABIL, NMB, and HBL the share valu- ation of NIBL and SBI decreases after the bonus share adjustments.

CHAPTER V SUMMARY AND CONCLUSION

5.1 Summary

Dividend policy is one of the three major decisions of the financial management. The dividend refers to that portion of the firm’s net earnings, which is paid out to the shareholders as a return for their investments. The dividend decision affects the operation, and prosperity of the organ- ization. To attract the new investors and to maintain the existing ones, dividend can be used as an effective tool. There are others who argue that dividend policy does affect value due to uncertainty factor. Many factors affect the dividend payment depending upon the investors’ need and preference on one hand and the financing need of the financial institution to the po- tential investment on the other hand. The dividend decision, in one hand affects the company’s structure. In other hand, it has an information value to the investors. The impacts on share price are one another influence of dividend decisions. These institution got opportunity and appro- priate environment to expand their activities, it is because the initially established financial institutions are unable to supply credit needs and meet the market expectation that market ac- tivities towards the growth position. The stockholders have a high desire and expectation that market price of share will be higher than net worth and getting high percentage of dividend from earnings. So, distributing dividend to the shareholders is effective way to achieve the trust of investors and encourage them to invest in shares.

The study is mainly focused to access the dividend declaration and its impact on market price in banks. Instability of dividend and haphazard payout ratio is the most common practice of Nepalese companies. Companies do not adequately maintain cash balance for dividend pay- ment. So, it covers some specific objectives to find out the relationship between other financial indicators and also to find out the appropriate dividend policies for different banks. The study of relationship between the dividend and stock prices have been accomplished by collecting and calculating the earning per share, dividend per share, dividend payout ratio, dividend yield, earning yield and price earnings ratio. To make the research reliable, many more analysis are conducted to find out appropriate relationship between dividend declaration and market share. Wilcoxon matched-pair method was used to examine the dividend declaration on Market Price of Stock.

Conclusion

In Nepal, only a few listed companies have been paying regular dividends to their shareholders. Further companies have not been following stable dividend payout policy. Above major find- ings led this study conclude that the earnings and dividend payout of banks are comparatively high than finance and manufacturing companies and it is said to be satisfactory in Nepalese context. On the other hand, the dividend payout ratio of listed companies in Nepal has not been able to distribute fair dividends. None of these companies have well defined and appropriate policy regarding dividend payment. In an imperfect market mechanism like Nepalese Share Market, the security brokers, other market makers and the rumors they spray in the market have also significant role in share price fluctuation.

After studying the variable of different bank and calculating there seems to be positive rela- tionship between MPS and others variables: DPS, EPS, and DPR. While studying the data of five year of fiscal year of five different bank not even a three banks had increase in MPS, while two bank seems to have decrease in MPS after the declaration of dividend but while calculating the relationship there shows to be positive relationship between MPS EPS, DPS.

Regarding the impact of dividend declaration, it can be concluded that there is significant im- pact on MPS.

Implications

Dividend is a source of return to shareholders. Shareholders invest in shares for the purpose of getting high return and maximize their wealth position .The dividend policy is an effective way to attract new investors, retain existing investors, and make them happy as well as to maintain the goodwill and desired controlling power in the management of the firm.

REFERENCES

Aadaramola, N. (2012). Dividend behavior and dividend signaling. The Journal of Financial Quantitative Analysis, 33(2), 173-189.

Adhikari, N. (2006). The comparative study of dividend policy and practices of commercial banks in Nepal. Kathmandu, Shanker Dev Campus.

Adhikari, N. (2014). Managers’ views on dividend policy of Nepalese administration, 9. 179- 200.

Adres, C., Betzer, A., Bongard, I.V. D, Haesner, C., & Theissen, E. (2009). Dividend An- nouncement, Market Expectation and Corporate Governance. Available online on: http://www.fep.up.pt retrieved on 25/3/2015.

Ajayi, M. A., & O.A. Seyingbo (2015). Dividend policy and share price volatility in Nigerian banking industry. Fountain University: Journal of Management and Social Sciences, 4(1). 251-272.

Allen, D. E., & V. S. Rachim (1996). Dividend policy and stock price volatility: Australian evidence. Applied Financial Economics, 6(2), 175-188. doi:10.1080/096031096334402

Al-Malkawi, H. N. (2007). Determinants of corporate dividend policy in Jordan: An application of the To bit model. Journal of Economic and Administrative Sciences, 23(2). 44–70. doi:10.1108/10264116200700007

Al‐Najjar, B. (2009). Dividend behavior and smoothing new evidence from Jordanian panel data. Studies in Economics and Finance 26(3). 182

197. https://doi.org/10.1108/10867370910974017

Amidu, N. (2007). How does dividend policy affect performance of the firm on Ghana Stock exchange? Investment Management and Financial Innovations, 4(2). 103-112.

Asquith, Paul, & David Mullins (1986). Equity issues and offering dilution. Journal of Finan- cial Economics, 15 (2), 61-89.

Baskin J. (1989). Dividend policy and the volatility of common stocks, Journal of Portfolio Management, 15(3). 19-25.

Bhandari, B., & Pokharel, T. (2012). Corporate dividend policy: A study of commercial banks of Nepal. Administrative and Management Review, 2(24), 24-44.

Bhattacharya, S. (1979).Imperfect information, dividend policy, and the bird in the hand Fal- lacy. The Bell Journal of Economics, 10(1), 259–270.

Bhattari, B. H. (1995). Dividend decision & its impact on stock valuation. Kathmandu. Shanker Dev Campus.

Black, F., & Scholes, M. S. (1974). The effects of dividend yield and dividend policy on com- mon stock prices and returns. Journal of Financial Economics, 1. 1-22.

Botha, D. H. (1986). Insolvency of holding stock and subsidiary companies: The Cork Re- port, De Jure 19. 363.

Brickley, J. A. (1983). Shareholder wealth, information signaling and the specially designated dividend: An empirical study. Journal of Financial Economics, 12(2). 187-209.

Chhetri, G. R. (2008). Dividend and Stock Prices: A Case of Nepal. An (unpublished M.Phil. thesis) submitted to Tribhuvan University.

De Angelo, and Stulz (2006). Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial Economics, 81(2). 227-254

Denis, and Osobov (2008). Why do firms pay dividend? International evidence on the determi- nant of dividend policy. Journal of Financial Economics, 89(1). 62-82.

Dhungel, P. (2010). Dividend Policy and Practices in Nepal : A Comparative Study of Listed Joint Venture Commercial Banks and Manufacturing Companies. Shanker Dev Campus, March, 2006.

Easterbook (1984). Two agency-cost explanations of dividend. The American Economic Re- view, 74(4) (September 1). 650-659.

Elton, E. J., Gruber, M. J., & Gultekin, M. (1981). Expectations and share prices. Institute for Operational Research and the Management Sciences, 27(9). 975-987.

Faloye, B. A., & Oluwole, F. O. (2014). Dividend announcement on share prices in a bull and a bear market phase. Journal of Economics and International Finance, 6(12). 272-283. Gabriel, Ajao Mayowa, and Wemambu Mary Ugochukwu (2012). Volatility estimation and stock price prediction in the Nigerian stock market. International Journal of Financial

Research 3.1. 2.

Gautam, R. R. (1998). Dividend Policy in Commercial Banks: A Comparative Study of NGBL, & NABIL. (Unpublished Master’s Dissertation). T.U. Central Department of Manage- ment, Kirtipur.

Gordon, M. (1963).Optimal investment and financing policy. The Journal of Finance, 18(2).

264–272.

Gordon, M. J., & Shapiro, E. (1956). Capital equipment analysis: The required rate of profit.

Management Science, 3. 102–110. doi:10.1287/mnsc.3.1.102

Gunaratne, D., Priyadarshanie, W. A. N., & Samarakoon,S.M.R.K.(2016). Impact of dividend policy on stock price volatility and market value of the firm: Evidence from Sri Lankan manufacturing companies. Corporate Ownership and Control, 13(3). 219–225.

Habib, Y. Z. I. K. & Khan, M. A. (2012). Dividend policy and share price volatility: evidence from Pakistan. Global Journal of Management and Business Research, 12(5). 2249- 2588.

Hashemijoo, M. A. M. Ardekani & N.Younesi (2012). The impact of dividend policy on share price volatility in the Malaysian stock market. Journal of Business Studies Quarterly, 4(1). 111-129.

Hastings C.W. (1996). “Self-checked computation using residue arithmetic.” Proceedings of the IEEE 54.12. 1920-1931.

Hussainey, K. (2010). Dividend policy and share price volatility: UK evidence. The Journal of Risk Finance, 12(1), 57-68.

Hussainey, K., Mgbame C. O. & Chijoke-Mgbame A. M. (2011). Dividend policy and share price volatility: UK evidence. The Journal of Risk Finance, 12(1). 57-68.

Ilaboya, O. J., and A. S. Omoye. “Earnings, dividend and share price volatility in Nigeria (2012). The Pakistan Journal of Social Issues 3. 149-160

Irandoost, R., Hassanzzadeh, R. B., & Salteh, H. M. (2013). The effect of dividend policy on stock price volatility and investment decisions. European Online Journal of Natural and Social Sciences. 2(3). 51-59.

Jahfer, A., & Mulafara, A. H. (2016). Dividend policy and share price volatility: Evidence from Colombo stock market. International Journal of Managerial and Financial Accounting, 8(2). 97–108. doi: 10.1504/IJMFA.2016.077947

Jecheche, P. (2012), Dividend policy and stock price volatility: A case of the Zimbabwe stock exchange. Journal of Finance & Accountancy, 10. 1-13.

Jo, Hoje, and Carrie Pan (2009). Why are firms with entrenched managers more likely to pay dividends? Review of Accounting and Finance.

Joshi, R. (2012). Effect of dividend on stock price in Nepal. NRB Economic Review, 24(2). 61- 75.

Kanniainen V. (2007). Imperfect transmission of tacit knowledge and other barriers to entre- preneurship. Journal of Comparative labor law & Policy, 28(4). 1-20.

Kenyoru R. (2013). Ownership structure and dividend policy – Evidence from the Kenya stock market. European Journal of Scientific Research, 25 (1). 42- 53.

Khaled, H., Chijoke, O. M., & Aruoriwo, M. (2011). Dividend policy and share price volatility: UK evidence. The Journal of Risk Finance 2(1). 57-68

Khan, K. I., M. Amir, A. Qayyum, A. Nasir, & M.I. Khan (2011). Can dividend decisions affect the stock prices: A case of dividend paying companies of KSE. International Research Journal of Finance and Economics, 76 (4). 67-74.

Khan, S. H. (2011). Determinants of Share Price Movements in Bangladesh: Dividends and Retained Earnings. Available in: http://www.seamist.se/fou/cuppsats.nsf/all/7a3a58f2c2af8ba1c1257695000a3b1d$file/

Koirala, P. P., & Thapa, P. P. (2007). Nepalese capital market: Issues and challenges. Eco- nomic Review, (4). 4-19.

Kinder, C. (2002). Estimating stock volatility. Available at: available at: http://finance. yahoo. com

Kothari, C. R. (1994). Quantitative Techniques. New Delhi. Vikash Publishing House Pvt.Ltd. Lazo, S. A. (1999). Speaking of Dividends: How do Corporate Leaders See Payouts? Barron’s.

Chicopee New York, 79 (1). 40.

Lease, R. C., Kose, J., Avner, K., Uri, L., & Oded, H. S. (2000). Dividend policy: Its impact on firm’s value. Boston, MA: Harvard Business School Press, 35.

Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings, and taxes. The American Economic Review, 2. 97-113.

Litner (1959), Gordon (1959), & Modigliani (1982). Dividends, earnings, and stock prices. The Review of Economics and Statistics, 13(6). 99-105.

Manandhar, K. D. (1998). A study of dividend policy and value of the firm in small stock market: A case of Nepal. Management Dynamics, 8(1). 15-20.

Masum, A. A. (2014). Dividend policy and its impact on stock price: A study on commercial banks listed in Dhaka Stock Exchange. Global Disclosure of Economics and Business, 3(1). 09-17.

Miller, M. H. & K. Rock. (1985). Dividend policy under asymmetric information. Journal of Finance, 40. 1031-1051.

Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares.

The Journal of Business, 34(4). 411–433.

Mokaya, S. O., D.M. Nyangara, & L.T. James, (2013). The effect of dividend policy on market share value in the banking industry: the case of national bank of Kenya. International Journal of Arts and Commerce, 2 (2). 91-101.

Neupane, T. P. (2014). Study on the Right Share Practice in Nepal and its Impact on Share Price of Listed Companies. Kathmandu. An (unpublished master’s dissertation), Sub- mitted to Faculty of Management, Office of the Dean. TU.

Nazir, Mian Sajid, Muhammad Musarat Nawaz, Waseem Anwar, & Farhan Ahmed (2010). Determinants of stock price volatility in Karachi stock exchange: The mediating role of corporate dividend policy. International Research Journal of Finance and Economics 55. 100-107.

Pandey, I. M. (1999). Financial management. New Delhi: Vikas Publishing House Pvt. Ltd. Pani, U. (2008). Dividend Policy and Stock Price Behaviour in Indian Corporate Sector: A

Panel Data Approach. Retrieved from Indian Institute of Technology: http://ssrn.com/abstract=1216171

Paul A., & Mullins, D. W. (1983). The impact of initiating dividend payments on shareholder’s wealth. The Journal of Business, 56(1). 77-96.

Pettit, R. (1972). Dividend announcements, security performance, and capital market effi- ciency. Journal of Finance, 27(5). 993-1007.

Pradhan, R. S. (2003). Effects of dividends on common stock prices. The Nepalese evidence. Working Paper series, Research in Nepalese Finance. Buddha Academics, Kathmandu, Nepal.

Profilet and Bacon (2013). Dividend policy and stock price volatility in the U.S. equity capital market. Proceedings of ASBBS, 20 (1).

Ramadan, I. Z. (2013). Dividend policy and price volatility. Empirical evidence from Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(2). 1522.

Rashid, A., & Rahman, A. (2009). Dividend policy and stock price volatility: Evidence from Bangladesh. The Journal of Applied Business and Economics, 8.

Rozeff, M. S. (1982). Gowth, beta and agency costs as determinants of dividend payout ratios. The journal of financial research, 5(3). 249-259. https://doi.org/10.1111/j.1475- 6803.1982.tb00299.x

Sadiq, (2013). The impact of dividend policy on market share value in the the case of national bank of Karachi. Bulletin of international business studies and finance, 2 (2). 91-101.

Shrestha, M.K. (2015). Factors affecting dividend policy of banking and non-banking enter- prises: A case of Nepal. Nepalese Journal of Business, 1 (1). 445- 456.

Suleman, M., M. Asghar, S. Ali Shah, & K. Hamid (2011). Impact of Dividend Policy on Stock Price Risk: Empirical Evidence from Equity Market of Pakistan, 4 (1). 45-52.

Waithaka, S. M., Ngugi, J. K., Ayiabei, J. K., Itunga, J. K., & Kirago, P. (2012). Effects of dividend policy on share prices: A case of companies in Nairobi Securities Exchange. Prime Journal of Business Administration and Management (BAM), 2(8). 642-648.

WasfiAlTroudi M., & Maysa’aMilhem M. (2013). Cash dividends, retained earnings and stock prices: Evidence from Jordan. Interdisciplinary Journal of Contemporary Research In Business, 4(12). 585-599. Zakaria, Z., J. Muhammad, & A. H., Zulkifli (2012). The Impact of dividend policy on the share price volatility: Malaysian construction and material companies. International Journal of Economics and Management Sciences, 2 (5). 1-8.

IMPACT OF DIVIDEND DECLARATION ON MARKET PRICE OF THE STOCK

A Proposal

Submitted By:

Pooja Gautam Roll No.: 2660006

Registration No: 7-2-266-181-2012

Submitted To:

Head of Research Department Nepal Mega College

In Partial Fulfillment of the Requirement for the Degree of Masters of Business Studies (MBS)

Babarmahal, Kathmandu September 2019

CHAPTER I……………………………………………………………………………………………………. 1

INTRODUCTION…………………………………………………………………………………………… 1

Statement of the Problem……………………………………………………………………………… 2

CHAPTER II……………………………………………………………………………………………………. 4

LITERATURE REVIEW…………………………………………………………………………………. 4

Theoretical review………………………………………………………………………………………… 4
- Dividend Payment Procedure……………………………………………………………………… 4
- Empirical review………………………………………………………………………………………….. 5

CHAPTER III…………………………………………………………………………………………………. 6

RESEARCH METHODOLOGY……………………………………………………………………….. 6

Research Design………………………………………………………………………………………….. 6
- Population and sample………………………………………………………………………………….. 6
- Nature and source of data…………………………………………………………………………….. 6

3.5 Data analysis……………………………………………………………………………………………….. 7

REFERENCES…………………………………………………………………………………………………. 8

CHAPTER I INTRODUCTION

Background of the Study

Dividend; that proportion of profit, distributed by company among its shareholder in distinc- tion to total profit of the company. Then, the strategies build by company about gain of the company to be distributed as dividend and retained earning known to be dividend policy.

Dividend Declaration is the date on which a company officially commits to the payment of a dividend. The ex-dividend date, or ex-date, is the date on which a stock begins trading with- out the dividend. To receive the declared dividend, shareholders must own the stock prior to the ex-dividend date.

With the increase in tourism, trade, transportation, industries, and many more (others) sectors the investment opportunities are increasing. All known thought, higher the investment higher the return and lower the investment lower the return. Yes, exactly, the return to be received from investment called dividend. Making an extremely important decision for the company and owners of the company is made through dividend policy managers.

As the dividend policy of the company is decided, the significance of dividend on stock price is also required to be calculated. The objective of a dividend policy is shareholders wealth maximization. The most important financial policies used in financial management is to achieve the objective of wealth maximization. But maximizing shareholders wealth position what impact may arise in share price of the firm and how do it impact is the main concern of the study. Stock/share price is the highest amount someone is willing to pay for the stock on the lowest and that it can be bought for (Layman). From a numerous stock, the price of single share known to be stock price.

Dividends are decided upon and declared by board of directors. A company is rated high if its share has a huge market value rather than having a lower market value. Share price of stock is one of the major indicators how a company is fairing. Nazir et al. (2010) and Shah and Noreen (2016) affirm the influences of dividend policy on stock price movements in Pakistan and confirm that the arbitrage realization effect, duration effect and information effect are re- inforced by their empirical evidence from this market.

Capital market in Nepal is in pre-emerging stage of development. The payments of dividend of the firm are governed by Companies Act, 2006 in Nepal. The provisions of Bank and Fi- nancial Institutions Act, 2006, and Unified Directives, 2013 issued by Nepal Rastra Bank govern the declaration and payment of dividend by the financial institution companies in Ne- pal. The provisions from Companies Act, 2006 indicate that dividends to be paid only out of profits of that fiscal year for which the resolution passed regarding the payment of dividends by the Annual General Meeting. Similarly, the provisions of the Financial Institutions Act, 2006 and Unified Directives issued by Nepal Rastra Bank require fulfilling the capital re- quirements, payment of preliminary expenses or losses and creation of reserve funds before declaring cash dividends to shareholders. Nepal being a capital deficient country has no other best alternative than to develop capital market to allocate scarce resources efficiently within the economies (Adhikari, 2013).

1.2 Statement of the Problem

Although many study has been made, there is still a controversy concerning the relationship between dividend declaration and market price of shares. Though there are some mentioned empirical evidences in the context of foreign countries, no such evidence exist in the context of Nepal. This study therefore deals with the following issue; what might the impact of divi- dend declaration on market price per share?

1.3 Objectives of the study

The major objective of this study is to analyze and evaluate the impact of dividend declara- tion on market price of the stock in some selected company in Nepal

To examine relationship between EPS and MPS.
1. To examine relationship between DPS and MPS.
2. To examine relationship between DPR and MPS.
3. To examine the impact of dividend declaration on Market price per share.

1.4 Rationale of the study

As stated above, corporate sector is expanding and prospective. So that investors are to gain a perfect knowledge about the market. This study tries to provide useful infor- mation to the investors.
Help for the further research in this field.

Examine investors’ preference on dividend and retained earnings, so as to find out which are preferred.
The impact of cash dividend on stock price.

1.5 Limitations

Then the research has some of the limitation as follows:

This study only covers the five sample banks.
The selected sample does not cover the all industrial sectors of Nepal.
This study covers only the secondary information ignoring the perceptual information.

CHAPTER II LITERATURE REVIEW

This chapter provides review of related theoretical and empirical study associated with divi- dend declaration and the market price per share of selected. It is divided into two sections. First section consists of a theoretical review of project. And the second section presents an in- depth review of related studies. This section also deals with a brief review of empirical works in the context of Nepal as well as outside Nepal.

2.1 Theoretical review

Dividend policy, in today’s corporations, has gone beyond this scope to include such issues as whether to distribute cash via share repurchase or through specially-designated rather than 4 regular dividends. Other issues considered are how to balance the preferences of highly taxed and relatively “untaxed” investors, how to maintain, and improve, the value of its shares and stocks in the market, etc. For Faloye and Oluwole (2014) dividend announcement is always expected to deliver some information to investors in relation to their corporations’ perfor- mance since the stock is always considered as being bullish or bearish. Securities market is supposed to be bullish if the stock prices are consistently on an upward trend and bearish if there are consistently downward. There is a significant positive relationship between dividend announcement and share price on a bullish market whereas bearish market listed as a negative significant relationship.

2.1.1 Dividend Payment Procedure

Firms usually pay dividend on a quarterly basis in accordance with the following payment procedures.

a) Declaration Date

This is the day on which the board of directors declare the dividend. At this time they set the amount of the dividend to be paid, the holders of record date, and the payment date.

b) Holders of Record Date

This is the date the company open the ownership books to determine no will receive the divi- dend; the stockholders of record on this date receive the dividend.

c) Ex-Dividend Date

d) Payment Date

This is the day when dividend checks are actually mailed to the holders of record.

2.2 Empirical review

This section is divided into two parts. First part deals with the foreign article whereas; second part deals with related studies in Nepalese context. The review of literature has been con- ducted

The linkage between dividend policy and stock price volatility in emerging markets has been investigated by Neupane (2017). According to study of Commercial banks in Nepal, study rests to conclude that the cash dividend can’t be said as a sole factor to affect price of share. But there are some other factors like earning power, bonus shares, information value of dividend decision etc. that also cause the share price fluctuation. Rashid and Rahman (2008), employ the data in the Bangladesh stock market and find no significant connection between dividend yield and stock price fluctuation. Similarly, Ilaboya and Omoye (2012), investigate the influence of div- idend policy on share price fluctuation in the Nigerian Stock Exchange market. By employing ordinary least squares (OLS) regression method, the research does not find the connection be- tween dividend yield, payout ratio, and stock price volatility. In the Sri Lankan market, Jahfer and Mulafara (2016), discover that stock price fluctuation is significantly positively related to dividend yield. Nevertheless, Gunaratne, Priyadarshanie, and Samarakoon (2016), explain that at this stock market, while share price volatility is negatively related to dividend yield in the present year, the payout ratio in both present and prior years is positively linked to stock price fluctuation.

Ajayi and Seyingbo (2015) revealed that there is a positive relationship of dividend payout ratio, earnings per share, size of the bank with share price volatility, while there exist a nega- tive relationship between earnings volatility and share price volatility. Growth and earnings volatility have negative and insignificant relation with price volatility. Jecheche (2012) showed that dividend yield and dividend payout have significant effect on the price volatility.

Profilet and Bacon (2013) revealed that leverage and growth both have negative relationship with stock price volatility.

CHAPTER III RESEARCH METHODOLOGY

Research methodology is a way to solve the research problem systematically and to fulfill the research objectives accordingly. This study plans the following methodological aspects.

3.1 Research Design

This study attempts to explore the impact on share price based on dividend declaration. For achieving the objectives, this study has adopted descriptive and analytical design.

3.2 Population and sample

Total number of commercial banks (27) are the population.

Sample has focused only on the five commercial banks. Sampling is the most appropriate technique for the adequate data of the observed population that would facilitate the test of hy- pothesis.

The following banks are the samples of the study:

Himalayan Bank Limited
NMB Bank
Nabil Bank Limited
Nepal Investment Bank Limited
Nepal SBI Bank Limited

3.3 Nature and source of data

a) Secondary Source

3.5 Data analysis

This study is quantitative and historical data will be used for analysis. Data analysis involves the process of inspecting, transforming, modeling, and interpreting data to discover meaning- ful information. The collected data will be analyzed through the use of the statistical tool, par- ticularly regression analysis.

Among them correlation coefficient method is used whereas, to examine the influence of div- idend declaration, Wilcoxon matched-pair test is used.

REFERENCES

Adhikari, N. (2014). Managers’ Views on Dividend Policy of Nepalese Administration, 9.

179-200.

Ajayi, M. A. & O. A. Seyingbo (2015). Dividend policy and share price volatility in Nigerian banking industry. Fountain University: Journal of Management and So- cial Sciences, 4(1). 251-272.

Allen, D. E., & Rachim, V. S. (1996). Dividend policy and stock price volatility: Austral- ian evidence. Applied Financial Economics, 6(2). 175–188. doi:10.1080/096031096334402

Al-Malkawi, H. N. (2007). Determinants of corporate dividend policy in Jordan: An application of the To bit model. Journal of Economic and Administrative Sci- ences, 23(2). 44–70. doi:10.1108/10264116200700007

Baker, H. K., Farrelly, G. E., & Edelman, R. B. (1985). A Survey of Management Views on Dividend Policy. Financial management.

Faloye, B. A., & Oluwole, F. O. (2014). Dividend announcement on share prices in a bull and a bear market phase. Journal of Economics and International Finance, 6(12). 272-283.

Gunaratne, D., Priyadarshanie, W. A. N., & Samarakoon, S. M. R. K. (2016). Impact of dividend policy on stock price volatility and market value of the firm: Evidence from Sri Lankan manufacturing companies. Corporate Ownership and Control, 13(3). 219–225.

Ilaboya, O. J. & Omoye, A. S. (2012). Earnings, dividend and share price volatility in Ni- geria. The Pakistan Journal of Social Issues, 3. 149.

Jahfer, A. & Mulafara, A. H. (2016). Dividend policy and share price volatility: Evidence from Colombo stock market. International Journal of Managerial and Financial Accounting, 8(2). 97–108. doi: 10.1504/IJMFA.2016.077947

Jecheche, P. (2012). Dividend policy and stock price volatility: A case of the Zimbabwe stock exchange. Journal of Finance & Accountancy, 10. 1-13.

Khan, M. S. & Khan, A. H. (1998). Capital flows to developing countries: Blessing or curse? with comments. The Pakistan Development Review. 125-151.

Nazir, M. S., Nawaz, M. M., Anwar, W., & Ahmed, F. (2010). Determinants of stock price volatility in Karachi stock exchange: The mediating role of corporate divi- dend policy. International Research Journal of Finance and Economics, 55(55). 100–107.

Neupane, T. P. (2014). Study on the Right Share Practice in Nepal and its Impact on Share Price of Listed Companies. Kathmandu (an unpublished master’s Disserta- tion).

Profilet & Bacon (2013). Dividend policy and stock price volatility in the U.S. equity cap- ital market. Proceedings of ASBBS, 20 (1).

Rashid, A. & A. Rahman (2009). Dividend policy and stock price volatility: Evidence from Bangladesh. Journal of Applied Business and Economics, 8(4). 71-81.

CERTIFICATION OF AUTHORSHIP

ACKNOWLEDGEMENT

TABLE OF CONTENTS

LIST OF TABLES

ABBREVIATIONS

CHAPTER I INTRODUCTION

1.1 Background of the Study

1.1 Problem statement

1.2 Objective of the study

1.3 Hypothesis

1.4 Rationale of the study

1.5 Limitations of the study

CHAPTER II LITERATURE REVIEW

2.1 Theoretical review

2.1.1 Dividend

2.1.2 Dividend payout schemes

i. Constant dividend per share

ii. Constant payout ratio

iii. Low regular dividend plus extras

iv. Residuals dividend policy

2.1.1 Forms of Dividend

Cash Dividend

Market price per share after cash dividend= Market price per share before cash dividend

Market price per share before stock dividend = 1+ stock dividend in fraction

2.1.2 Dividend Payment Procedure

a) Declaration Date

b) Holders of Record Date

c) Ex-Dividend Date

d) Payment Date

Factors Affecting Dividend Policy

a) Desire of Shareholders

b) Legal Rules

c) Liquidity Position

d) Need to Repay Debt

e) Restrictions in Debt Contracts

f) Rate of Asset Expansion

g) Profit Rate

h) Tax Position of Shareholders

i) Stability of Earning

j) Control

2.2 Empirical review

2.1 Review of Nepalese Studies

Table 3

CHAPTER III RESEARCH METHODOLOGY

3.1 Research Design

3.2 Population and sample

3.3 Nature and source of data

a) Secondary Source

3.4 Methods of analysis

3.5 Define Variables Market price per share

Earnings per Share

Dividend per Share

Dividend Payout Ratio

Dividend Yield

Earning Yield Ratio (EYR)

Arithmetic Mean (A.M.)

Standard Deviation (S.D.)

Coefficient of variation (CV)

Karl Pearson’s Correlation Coefficient (r)

T-Statistics (t)

Wilcoxon Matched Pair Method

CHAPTER IV RESULTS AND DISCUSSION

4.1 Analysis of Financial Indicators and Variables

4.1.1 Matched-Pair Analysis of dividend declaration on MPS. Table 3

4.1.2 Overall statistics of selected sample Banks

4.1.3 Association between Dividend Declaration and Market Stock Price

4.1.1 Analysis of Mean, Standard Deviation and Coefficient of Variance of HBL

Mean and Standard Deviation of NMB

Mean and Standard Deviation of NIBL

Mean and Standard Deviation of SBI

4.2 Analysis of Statistical Indicators and Variables

4.3 Major Findings

CHAPTER V SUMMARY AND CONCLUSION

5.1 Summary

Conclusion

Implications

REFERENCES

IMPACT OF DIVIDEND DECLARATION ON MARKET PRICE OF THE STOCK

A Proposal

Submitted To: