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DIVIDEND POLICY AND ITS IMPACT ON SHARE PRICE

(ANALYSIS OF SELECTED “A” CLASS LISTED COMPANIES)

Submitted By
Bijendra Bahadur Malla
Roll No.: 740090
Reg. No: 2007-2-22-0056

A Research Report Submitted To


Prof. Dr. Prem Raj Pant
Apex College
Pokhara University

In partial fulfillment of requirements for the course on


Research Methodology

For the degree of


Master of Business Administration

Kathmandu
August, 2009
ACKNOWLEDGEMENTS

This Study has been under taken to analysis the “Dividend Policy and its Impact
on Share Price (Analysis of selected “A” Class Listed Companies)” under partial
fulfillment of the requirement of MBA degree. The thesis mainly covers the
dividend policy and its impact on share price of “A” class listed companies of
Nepal.

I would like to express my deep gratitude to Professor Dr. Prem Raj Pant, for his
kind support, advice and continuous support for the thesis writing.

I would like to express my deep greet to my respected supervisor, Mr. Pushpa


Raj Joshi and Mr. Bharat Singh Thapa for his continuous guidance and
supervision. The report in this form is the result of their inspiring and invaluable
guidance and supervision.

I express sincere thanks to all librarians of Apex College who helped me directly
and indirectly in the course of review of literature.

Finally, I would like to thank my family and friends for their help, blessings,
love and support for me to prepare for the thesis writing.

........…….……........
Bijendra Bdr. Malla

I
CERTIFICATE OF AUTHORSHIP

I, hereby declare that this submission is my own work and that to the best of my
knowledge and belief, it contains no materials previously published or written by
another person nor material which to a substantial extent has been accepted for the
award of any other degree of university or other institutions, except where due
acknowledgement is made in the acknowledgements.

Date: …………… ……………………


Bijendra Bdr. Malla

II
TABLE OF CONTENTS

Acknowledgements I
Certificate of Authorship II
Table of Contents III
List of Tables VI
List of figures VII
Abbreviations VIII
Executive Summary XI

Chapter 1 Introduction

1.1 Background of the Study 1


1.2 The Problem Statement 5
1.3 Purpose of the Study 6
1.4 Significance of the Study 7
1.6 Limitations of the Study 7
1.7 Organization of the Study 8

Chapter 2 Review of Literature

2.1 Conceptual Framework 10


2.1.1 Meaning of Dividend 10
2.1.2 Theories Regarding Dividend 11
2.1.3 Types of Dividend 12
2.2 Dividend Policy 16
2.3 Factors Affecting Dividend policy 20
2.4 Payment Procedure Followed by Companies 23
2.5 Ex- dividend Day Tests 23
2.6 Quality Rating of Companies in Nepal 25
2.7 Legal Provision Regarding Dividend Practice in Nepal 26
2.8 Review of the International Studies 29
2.9 Review of the Thesis 43
2.10 Concluding Remarks

III
Chapter 3 Methodology

3.1 The Research Design 44


3.2 The Population and Sample 44
3.3 Sources of Data 46
3.4 Methods of Data Analysis 46
3.5 Tools Used 46
3.5.1 Arithmetic Mean (A.M.) 46
3.5.2 Standard Deviation (S.D.) 47
3.5.3 Coefficient of Variation (C.V.) 47
3.5.4 Karl Pearson’s Correlation Coefficient (r) 47
3.5.5 T-statistics 48
3.5.6 F-statistics 48

Chapter 4 Presentation and Analysis of Data

4.1 No. of Cash Dividend paying listed companies 49


4.2 Cash Dividend Payment of sector-wise financial institutions 50
4.2.1 Cash Dividend Payment of Commercial Banks 50
4.2.2 Cash Dividend Payment of Development Banks 52
4.2.3 Cash Dividend Payment of Insurance Company 53
4.2.4 Cash Dividend Payment of Finance Company 53
4.2.5 Cash Dividend Payment of Manufacturing and Processing 55
Company
4.2.6 Cash Dividend Payment of Other Company 56
4.2.7 Cash Dividend Payment of Hotel 57
4.2.8 Cash Dividend Payment of Trading Company 58
4.3 Ex-dividend Test 58
4.3.1 For the Fiscal Year 2003/04 58
4.3.2 For the Fiscal Year 2004/05 59
4.3.3 For the Fiscal Year 2005/06 60
4.3.4 For the Fiscal Year 2006/07 61
4.3.5 For the Fiscal Year 2007/08 62
4.4 Test of Hypothesis 62
4.4.1 Test of Hypothesis on Cash Dividend Payment of Commercial 63
Banks

IV
4.4.2 Test of hypothesis on Cash Dividend Payment of 64
Development Banks
4.4.3 Test of Hypothesis on Cash Dividend Payment of 65
Manufacturing and Processing Companies
4.5 Major Findings 66

Chapter 5 Summary and Conclusions

5.1 Summary of Findings 69


5.2 Conclusions 70
5.3 Recommendations 71

References
Appendix

V
LIST OF TABLES

Table No.4.1 Number of Cash Dividend Paying listed company 49


Table No.4.2 Cash Dividend Payment of Commercial Banks 50
Table No.4.3 Cash Dividend Payment of Development Banks 50
Table No.4.4 Cash Dividend Payment of Insurance Company 53
Table No.4.5 Cash Dividend Payment of Finance Company 53
Table No.4.6 Cash Dividend Payment of Manufacturing and Processing 55
companies
Table No.4.7 Cash Dividend Payment of Other Company 56
Table No.4.8 Price effect after Cash Dividend Payment on 58
Fiscal Year 2003/04
Table No.4.9 Price effect after Cash Dividend Payment on 59
Fiscal Year 2004/05
Table No.4.10 Price effect after Cash Dividend Payment on 60
fiscal year 2005/06
Table No.4.11 Price effect after Cash Dividend Payment on 61
fiscal year 2006/07
Table No.4.12 Price effect after Cash Dividend Payment on 62
fiscal year 2007/08
Table No.4.13 One-way AVOVA table for Cash Dividend Payment 63
of Commercial Banks
Table No.4.14 One-way AVOVA table for Cash Dividend Payment 64
of Development Banks
Table No.4.15 One-way AVOVA table for Cash Dividend Payment 65
of Manufacturing and Processing Companies

VI
LIST OF FIGURES

Fig. No. 4.1 Number of Cash Dividend Paying Listed Companies 49


Fig. No. 4.2 Cash Dividend Payment of Commercial Banks 51
Fig. No. 4.3 Cash Dividend Payment of Development Banks 52
Fig. No. 4.4 Cash Dividend Payment of Finance Companies 54
Fig. No. 4.4 Cash Dividend Payment of Manufacturing and Processing 55
Companies
Fig. No. 4.5 Cash Dividend Payment of Other Companies 57

VII
ABBREVIATIONS

A.D. Anno Domini

AFC Annapurna Finance Company Limited

AGM Annual General Meeting

A.M. Arithmetic Mean

ANOVA Analysis of Variance

BFL Bhajuratna Finance and Saving Company Ltd.

BNL Bottlers Nepal Limited

BOD Board of Directors

CBBL Chimeki Bikas Bank Ltd.

CDND Cash Dividend Not Declared

C.F. Correction Factor

CHPCL Chilime Hydropower Company Limited

C.V. Coefficient of Variation

DCBL Development Credit Bank Limited

DPS Dividend per Share

EBL Everest Bank Limited

EFL Everest Finance Company Limited

EPS Earning per Share

VIII
EIC Everest Insurance Company Limited
et.al and others Latin:et aili

F/Y Fiscal Year

HBL Himalayan Bank Limited

HGI Himalayan General Insurance Company

Ltd. Limited

MPS Market Price per Share

MSC Mean sum of square between columns

MSE Mean sum of square due to error

NABIL Nabil Bank Limited

NEPSE Nepal Stock Exchange

NIBL Nepal Investment Bank Limited

NLIC Nepal Life Insurance Company Limited

No. Number

NPR Nepalese Rupees

NRB Nepal Rastra Bank

NUBL Nirdhan Utthan Bank Limited

Rs. Nepalese Rupees

SBB Sahayogi Bikas Bank Limited

SBBL Sanima Bikas Bank Limited

SBI Nepal SBI Bank Limited

IX
SCBNL Standard Chartered Bank Nepal Limited

S.D. Standard Deviation

SEBON Securities Board of Nepal

SSC Sum of square between samples

SSW Sum of square within samples

TSS Total Sum of Square

UIC United Insurance Company (Nepal) Ltd.

UNL Unilever Nepal Limited

% Percent

X
EXECUTIVE SUMMARY

Dividend policy decision is one of the three decisions of financial management


because it affects the financial structure, the flow of funds, corporate liquidating and
investors’ attitudes. The main aspect of dividend policy is to determine the amount
of earning to be distributed the shareholder and the amount to be retained in the
firm. Divined policy involves the decision to pay out earning versus retaining them
for reinvestment in the firm. The relationship between dividend and the value of the
share is not clear cut. The financial manager must understand the various conflicting
factors which influence the dividend policy before deciding the allocation of its
company’s earnings into dividends and retain earnings.

This study focuses on the dividend practice and its influence in prospect of Nepal of
“A” class listed companies in Nepal. The empirical testing has been proved that ex-
day stock price tend to fall by significantly less than the dividend. They interpret the
result as consistent with a clientele effect where investors in high tax brackets show
a preference for capital gains over dividends and vice versa.

The number of cash dividend paying companies listed at NEPSE is seen almost the
same in context of total listed companies since last five fiscal year except 2004/05 in
which it comprise of 20.80 percent of total listed companies. It is also seen that
there is the low degree of positive correlation between the total number of listed
companies and the number of cash dividend paying listed companies. Most of the
finance company is not being capable of declaring cash dividend to their
shareholders. This study also wrap up that there is no significant difference between
the average MPS before and after the cash dividend payment of commercial banks,
development banks and finance company.

XI
Chapter 1
Introduction

1.1 Background of the Study

After the restoration of democracy in 1990 A.D., Nepal has implemented liberal
economic policy. As a result, many more companies are established in different
sectors such as industrial, tourism, transportation, trade and mostly in financial
sector who contribute to build up economy of the country. Nepal is a country trying
to develop its economy through global trend and cooperation with developed
countries.

The development of an economy requires expansion of productive activities, which


in turn is the result of the capital formation, which is the capital stock of the country.
The change in the capital stock of the country is known as investment. Investment is
key factor for capital formation. Investment promotes economic growth and
contributes to a nation’s wealth. Investor desire to earn some return from the
investment, without any return there is no any investment. Investment will block, if
there is no return. The total expected return include two components one is capital
gain and other is dividend.

In the capital market, all firms operate in order to generate earnings. Shareholders
make investment in equity capital with the expectation of making earning in the
form of dividend or capital gains. Thus, shareholders wealth can increase through
either dividend or capital gain. Once the company earns a profit, it should decide on
what to do with the profit. It could be continued to retain the profit within the
company, or it could pay out the profit to the owners of the company in the form of
dividend. Dividends are payment made to stockholders from a firm’s earning in
return to their investment. Dividend policy is to determine the amount of earnings to
be distributed to shareholders and the amount to be retained or reinvestment in the

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firm. The objective of a dividend policy should be to maximize shareholder’s wealth
position.

Retained earnings are used for making investment in favorable investment


opportunities, which in turn help to increase the growth rate of the firm. What and
how much it is desirable to pay dividend is always a controversial topic because
shareholders expect higher dividend from corporation, but corporation ensure
towards setting aside funds for maximizing the overall shareholders’ wealth.
Management is therefore concerned with the activities of corporation that affect the
well being of shareholders. That well being can be partially measured by the
dividend received, but a more accurate measure is the market value of stock. But
stockholders think dividend yield is less risky than capital gain.

Dividends are payments made by a corporation to its shareholders. It is the portion


of corporate profits paid out to stockholders. When a corporation earns a profit or
surplus, that money can be put to two uses: it can either be re-invested in the
business i.e. retained earnings, or it can be paid to the shareholders as a dividend.
Many corporations retain a portion of their earnings and pay the remainder as a
dividend.

The most widely accepted objective of a firm is to maximize the value of the firm
and to maximize shareholder wealth. In general, there are three types of financial
decisions which might influence the value of a firm: investment decisions, financial
decisions and dividend decisions. These three decisions are interdependent in a
number of ways. The investments made by a firm determine the future earnings and
future potential dividends; and dividend policy influences the amount of equity
capital in a firm’s capital structure and further influences the cost of capital. In
making these interrelated decisions, the goal is to maximize shareholder wealth.

Dividends are decided upon and declared by board of directors. A firm’s profits
after-tax can either be used for dividends payment or retained in the firm to increase
shareholders' fund. This may involve comparing the cost of paying dividend with

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the cost of retaining earnings. Generally, whichever component has a lower cost that
is where the profit after-tax will flow. However, there is a need to strike for a
balance because it is a zero sum decision.1 Although firms do not have obligations
to declare dividends on common stock, they are normally reluctant to change their
dividend rate policy every year as the firms strive to meet stockholders’ expectation,
build a good image among investors and to signal that the firm has stable earnings
to the public.

The theory of dividend and its effect on the value of the firm is perhaps one of the
most important yet puzzling theories in the field of finance. Academics have
developed many theoretical models describing the factors that managers should
consider when making dividend policy decisions. By dividend policy, we mean the
payout policy that managers follow in deciding the size and pattern of cash
distributions to shareholders over time. Miller and Modigliani (1961) argue that
given perfect capital markets, the dividend decision does not affect firm’s value and
is, therefore, irrelevant. However, most financial practitioners and many
academicians believe otherwise. They offered many theories about how dividends
affect firm’s value and how managers should make dividend policy decisions. Over
time, the number of factors identified in the literature as being important to consider
in making dividend decisions increased substantially. There are plenty of potential
determinants for the dividend decisions. The more prominent determinants include
protection against liquidity, after-tax earnings of the firm, liquidity and cash flow
consideration, stockholders' expectation/preference, future earnings, past dividend
practices, return on investment, industry norms, legal constraints, growth prospects,
inflation and interest rate. (Foong, Zakaria and Tan, 2007, p.98)

The development of an economy requires expansion of productive activities, which


in turn is the result of the capital formation, which is the capital stock of the country.
The change in the capital stock of the country is known as investment. Investment is
key factor for capital formation. Investment promotes economic growth and
contributes to a nation’s wealth. Investor desire to earn some return from the

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investment, without any return there is no any investment. Investment will block, if
there is no return. The total expected return include two components one is capital
gain and other is dividend.

In the capital market, all firms operate in order to generate earnings. Shareholders
make investment in equity capital with the expectation of making earning in the
form of dividend or capital gains. Thus, shareholders wealth can increase through
either dividend or capital gain. Once the company earns a profit, it should decide on
what to do with the profit. It could be continued to retain the profit within the
company, or it could pay out the profit to the owners of the company in the form of
dividend. Dividends are payment made to stockholders from a firm’s earning in
return to their investment. Dividend policy is to determine the amount of earnings to
be distributed to shareholders and the amount to be retained or reinvestment in the
firm. The objective of a dividend policy should be to maximize shareholder’s wealth
position.

Retained earnings are used for making investment in favorable investment


opportunities, which in turn help to increase the growth rate of the firm. What and
how much it is desirable to pay dividend is always a controversial topic because
shareholders expect higher dividend from corporation, but corporation ensure
towards setting aside funds for maximizing the overall shareholders’ wealth.
Management is therefore concerned with the activities of corporation that affect the
well being of shareholders. That well being can be partially measured by the
dividend received, but a more accurate measure is the market value of stock. But
stockholders think dividend yield is less risky than capital gain.

In Nepal only few companies are paying dividend and the other companies are not
stable in the payment of dividend. There are some companies who have never paid
dividend to their investors throughout their historical background. It has been
noticed that company who has risen dividend generally experience on increase its
stock price and that a company don’t pay dividend or lowers it’s has a falling stock
price trend. It seems to suggest that dividend so matter, is affecting the stock price

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of the company but several researchers argue the fact that dividend affect stock
price, rather it is the information declaration of dividend that affect the stock price.
It is fact that dividend work as a simple sufficient signal of management’s
interpretation of the firm’s recent performance and its future prospects.

1.2 The Problem Statement

Dividend policy is an integral part of financial management decision of a business


firm. Dividend refers to that portion of a firm’s net earning which are paid out to the
shareholders. Whether dividends have an influential on the value of the firm is the
most critical question in dividend policy. If dividends are irrelevant, the firm should
retain earnings for investment opportunities. If there are not sufficient investment
opportunities providing expected returns in excess of the required return, the unused
funds should be paid out as dividends.

Dividend is the most inspiring factor for the investment on shares of the company is
thus desirable from the stockholder's point of view. In one hand the payment of
dividend makes the investors happy. But in the other hand the payment of dividend
decreases the internal financing required for making investment in golden
opportunities. This will hamper the growth of the firm, which in turn affects the
value of the stock.

Earnings are also treated as financing sources of the firms. The firm retains the
earning; its impact can be seen in many factors such as decreased leverage ratio,
expansion of activities and increase in profit in succeeding years. Whereas if firm
pays dividend, it may need to raise capital through capital that will affect on risk
characteristics of the firm. Therefore there are many dimensions to be considered on
dividend theories, policies and practices.

Shareholders make investment in equity capital with the expectation of making


earnings. Dividend is kind of earning that the shareholders expect form their

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investment. But, the dividend decision is still a fundamental as well as controversial
area of managerial finance. The effect of dividend on market price of stock is the
subject matter of the study.

There are many empirical studies on dividend and stock price behavior. For
example, few of them are Linter (1956), Miller and Modigliani (1961), Durand and
May (1960), Friend and Puckett (1964), Fama and Babiak (1968), Elton and Gruber
(1970), Frank and Jagannathan (1998), Uddin (2003), Foong, Zakaria and Tan
(2007). However, conclusive relationship exists between the amount paid out in
dividend and the market price of the share. There is still a considerable controversy
concerning the relation between dividend and stock price.

Theoretically, the share price should fall down after the book closure by an amount
to the amount of cash dividend, in case the company is going to distribute cash
dividend. For example, if the share price of ABC Company on one day before the
book closure was Rs. 1000 and the company had declared Rs.70 per share as cash
dividend, which was to be formalized in the coming AGM. The price per share in
the first transaction after the book closure should be around Rs. 930.

1.3 Purpose of the Study

The major objective of the study is to determine the trend and practices of dividend
payment by the Nepalese “A” class listed companies of Nepal from fiscal year
2003/04 to 2008/09 however the specific objective is are as follows.

• To examine the impact of dividend policy on market price of stock of “A”


class listed companies of Nepal.
• To explore the prevailing practices and effort made in dividend policy
among the companies.
• To identify the regularity and uniformity of dividend paying financial
institutions.

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1.4 Significance of the Study

In the capital market the investor can earn return in two ways, one is dividend and
another is capital gain. The term dividend is defined as a return from investment in
equity shares. So dividend is important factor for investor while investing in equity
shares. This study helpful to investor to take rational decision like where to invest,
how to invest, what portfolio should be made to obtain maximum profit from their
investment? When a new company floats shares through capital market, large
numbers of people gathers to apply for owner's certificate. It indicates people's
expectation on higher return of investment in shares. In Nepalese context, most of
investors are investing in the stock without adequate knowledge of the company and
performance and dividend policies. This study helps to aware the Nepalese
investors.

This study is useful for the firm’s perspective too. They know the investor
objective’s from this study. There are basically two types of objective one is
receiving dividend and another is receiving capital gain. Knowing the objective of
investor they can develop their plans and policies accordingly.

Basically this study is conducted to help the investor while investing in share
capital. So that they can make correct decision at right time about the influence of
dividend in market price of share and make investment.

1.5 Limitations of the Study

1. The study is mainly concentrated on the dividend practice and its influence
in prospect of Nepal of “A” class listed companies in Nepal.
2. The data being taken from secondary source, therefore authenticity of the
data is dependent on the accuracy of the information used.

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3. The result and the interpretation are completely rigid and from the view
point of the researcher.
4. Among the different aspect of dividend policy only cash dividend is taken
for the analysis.

1.6 Organization of the Study

The whole study has been divided into five chapters.

Chapter 1 Introduction

In this chapter we deal with the introductory part of the study which includes
background of the study, statement of the problem, objective of the study,
significance and limitation of the study

Chapter 2 Review of Literature

This chapter deals with review of the different literature in regard to the theoretical
analysis and review of book, articles and thesis related to this study.

Chapter 3 Methodology

This chapter deals with research methodology used to carry out the research. It is
includes research design, population and sample, source and technique of data
collection, data analysis tools.

Chapter 4 Presentation and Analysis of Data

This chapter is the main part of the study, which includes analysis and interpretation
of the data using financial and statistical tools. Similarly this chapter also includes
the major finding of the study.

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Chapter 5 Summary and Conclusions

Here we will give the summary and conclusions of the study and recommendations
for further studies.

9
Chapter 2
Review of Literature

2.1 Conceptual Framework

2.1.1 Meaning of Dividend

The term dividend is defined as a return from investment in equity shares. The profit
made by the firm which is distributed to the shareholders termed as dividend. Every
firm after making profit either retain the money for further investment or distribute
it among the shareholders. The firm should decide whether to keep the money as
retained earning or pay the dividend. It may be in cash, share and combination of
both. The dividend policy is the policy followed by the firm regarding the dividend
versus retention decision. Dividend policy of different organization may same or
different, but the policy followed by the firm should be suitable for both the
shareholders as well as the firm itself.

Dividend policy decision is one of the three decisions of financial management


because it affects the financial structure, the flow of funds, corporate liquidating and
investors’ attitudes. Dividend decision of the firm is a very crucial controversial
area of financial management. The main aspect of dividend policy is to determine
the amount of earning to be distributed the shareholder and the amount to be
retained in the firm. When a company pays dividend, the shareholder benefitted
directly. If the company retains the funds for investment opportunities, the
shareholders can be benefitted indirectly through future increase in the price of their
stock. Thus, shareholders wealth can be increase through either dividend or capital
gain. Divined policy involves the decision to pay out earning versus retaining them
for reinvestment in the firm. Any change in dividend policy has both favorable and
unfavorable effects on the firm’s stock price. Higher the dividend means higher the
immediate cash flows to investors, which is good, but lower future growth, which is

10
bad. The dividend policy should be optimal which balances the opposing forces and
maximizes stock prices.

Since the motive of shareholder is to receive returns on their investment. There is an


adverse relation between retained earning and cash dividend. When the amount of
retain earning is high, the company declares less dividend and when the high
dividend is paid than retain earning is reduced, which reduce the opportunity to
reinvest and expansion of the organization. So dividend decision is one of the major
decisions of managerial finance. This decision consist the decisive decision of
choosing between distributions of profit to shareholders or investing them back into
the business. Dividend decision has great influence on financial structure, flows of
funds, corporate liquidity and so on.

The relationship between dividend and the value of the share is not clear cut. The
financial manager must understand the various conflicting factors which influence
the dividend policy before deciding the allocation of its company’s earnings into
dividends and retain earnings.

In fact, dividend is the portion of the net earnings, which is distributed to the
shareholders by a company. After successfully completing the business activities of
a company, if the financial statement shows the net profit, the Board of Directors
(BOD) decides to declare dividend to the shareholders. Therefore, the payment of
corporate dividend is at the discretion of the BOD.

2.1.2 Theories Regarding Dividend

i. Residual theory

Residual theory is that, in which the first priority is given to the profitable
investment opportunities. If there are profitable opportunities, the firm invest is
those and residual income (if any) is distribute to shareholders. Residual theory of
dividends means,’ A theory that suggests that the dividend paid by the firm should
be the amount left over after all acceptable investment opportunities have been

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under taken.’ Using this approach the Firm would treat the dividend decision in
three steps as follows:

Step 1 Determine the optimum level of capital expenditure which would be the
level generated by the point of intersection of the investment
opportunities schedule (IOS) and weight managerial cost of capital
(WMCC) function.

Step 2 Using the optimal capital structure proportion, it would estimate the
total amount of equity financing needed to support the expenditures
generated in step 1.

Step 3 Because of the cost of retained earnings is less than the cost of new common
stocks; retained earnings would be used to meet the equity requirement
determined in step 2. If retained earnings are inadequate to meet this need,
new common stock would be sold. If the available retain earning are in
excess to this needs, the surplus amount would be distributed as dividends.
(Gitmen, 2001, p.544)

ii. Wealth maximization theory

Under wealth maximization theory, large dividends is announced and distributed to


shareholders in order to (or in hope with) maximize the wealth of the shareholders.
Basically, it is applicable for those companies, which are just established and to
those companies it will be beneficial whose financial profits are is decreasing
trends. The main purpose of the wealth maximization theory of dividend is to make
assurance to the stockholders that they are interesting in the firm, which has not
better market value.

2.1.3 Types of Dividend

Keeping these theories into considerations, dividend can be paid in different forms.
Among them some are discuss below:

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a. Stock Dividend/Bonus Share

A stock dividend occurs when the board of directors authorizes a distribution of


common stock to existing shareholders. Stock dividend increases the number of
outstanding shares of the firm’s stock. Although stock dividend does not have a real
value, firms pay stock dividend as a replacement for a supplement to cash dividend.
Under stock dividend, shareholders receive additional shares of the company in lieu
of cash dividends. Stock dividend requires an accounting entry transfer from the
retained earnings account to the common stock and paid in capital accounts.

Rupees transferred from retained earnings = Number of shares outstanding *


Percentage of stock dividend * Market price of the stock.

This has the effect of increasing the number of outstanding shares of the company as
a result the decrease in EPS which effect the reduction in the market price of the
share. Since the shares are distributed proportionately, share holders retain his
proportionate ownership of the company.

b. Scrip Dividend

A scrip dividend is a distribution of surplus to the stockholders in the form of notes


or promises to pay the amount of dividend at a certain time. The notes are called
dividend certificates or scrip. Sometime companies need cash generated by business
earning to meet business requirements or with-hold the payment of cash dividend
because of temporary shortage of cash. In such circumstance the company may
issue scrip dividend payable at future dates.

c. Bond Dividend

With the theory and concept of scrip dividend, if dividends are paid in the form of
bond (to shareholders), promising that it will mature in future date is known as bond
dividend. Therefore the intention and purpose of bond dividend is also the
postponement of dividend payment for some time. The only difference between

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bond and scrip dividend is that bond carries relatively longer maturity date than
scrip dividend.

Bonds used to pay carry interest and it means that the company assumes the fixed
obligation of interest payment annually and principal amount of bond at maturity
date. Bond dividend posses the following characteristic:

• Bond dividends are the means to dividend postponement for a while but
more it is obligation.
• It couldn’t bring back the psychological value as the cash dividend.
• Bond and scrip dividend are same, only the difference between these are
maturity time i.e. scrip has relatively less maturity time than bond dividend.

d. Stock Split and Reserve Split

A method that is commonly used to lower the market price of a firm’s stock by
increasing the number of shares belonging to each shareholder.
The effect of a stock split is an increase in the number of shares outstanding and a
reduction in the par, or stated, value of shares. The total net worth of the firm
remains unchanged. The stock split does not involve any cash payment, only
additional certificates representing new shares.

A method that is used to raises the market price of a firm’s stock by exchanging
certain number outstanding shares for one new share of stock.

The effect of a reverse split is a decrease in the number of shares outstanding and a
increase in the par, or stated, value of shares. The total net worth of the firm remains
unchanged. The reverse split does not involve any cash payment, only additional
certificates representing new shares.

When the market price of share of a company is falling gradually, the company may
adopt reserve split which may increase the market price of share and help to
maintain efficient situation of the company.

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e. Stock Repurchase

It is the process of repurchasing back outstanding share of any company. A


corporation’s repurchase of its stock can serve as a tax advantages substitute for
dividend payout. Repurchase have the effect of raising share prices so that
shareholders can be taxes at the capital gain rate instead of ordinary dividend rate on
cash dividend. Company can repurchase its shares in two ways:

• Open market repurchase


• Tender (Offer) repurchase

Open market repurchase usually (but not always) involve gradual programs to buy
back shares over a period of time. In tender offer, the company usually specifies the
number of shares it is offering to repurchase, a tender price and a period of time
during which the offer is in effect. If the number of shares actually tendered by the
shareholders exceeds the maximum number specified by the company, then the
purchases are usually made on a pro-rata basis. Alternatively, if the tender offer is
under subscribed the firm may decide to cancel the offer of extend to expiration
date. Share tendered during the extension may be purchased on either pro-rata or
first-come, first-served basis. (Weston and Copeland, 1991, 682)

The repurchase of stock holds major three reasons i.e. for stock option, for
acquisition and for retiring the stock. However, Nepalese Company Act 1997,
section 47 has prohibited company for repurchasing its own shares, it states that no
company shall purchase its own shares or supply loans against the security of its
own shares.

Stock is repurchased specially when the firm has abnormally high profits and is not
in a position to effectively utilize surpluses.

The repurchase effects are as follows:

• The stock repurchases reduce the number of outstanding stocks.


• It increases EPS and also DPS if the payout ration is not changed,

15
• It increases the proportional ownership of existing stockholders.
• It increases the stock price as net worth per share increases.

f. Cash Dividend

The most common way to pay dividend is in the form of cash. A company should
have enough cash in its bank account when cash dividends are declared. If the
company doesn’t have enough cash at the time of paying cash dividend,
arrangement should be made to borrow funds. Payment of cash dividend shouldn’t
lead to liquidity problem for the company.

The cash account and the reserve account of a company will be reduced when the
cash dividend is paid. Both the total assets and the net worth of the company are
reduced by the distribution of cash dividend. Beside the market price of the share
affected in most cases by the amount of cash dividend distributed.
Cash dividend has the direct impact on the shareholders. The volume of the cash
dividend depends upon earnings of the firm and on the management attitude or
policy. Cash dividend has psychological value for stockholders. Each and everyone
like to collect their return in cash rather than non-cash means. So cash dividend is
not only a way to earnings distribution but also a way of perception improvement in
the capital market. The objectives of the cash dividend are:

• To distribute the earnings to shareholders, as they hold the proportion of the


share.
• To build an image in the capital market so as to create favorable condition to
raise the fund at the needs.
• To make distribution easy and to account easily.

2.2 Dividend Policy

Dividend policy determines the decision of earnings between payment to


stockholders and reinvestment in the firm. Retained earnings are one of the most

16
significant sources of funds for financing corporate growth, but dividends constitute
the cash flow that accrues to stockholders. (Weston and Copeland, 1991, p.657)

The third major decision of the firm is its dividend policy, the percentage of
earnings it pays in cash to its stockholders. Dividend payout, of course, reduces the
amount of earnings retained in the firm and affects the total amount of internal
financing. The dividend payout ratio obviously depends on the way earnings are
measured for case of exposition, we use account net earnings but assume that these
earning can form true economic earnings. In practice, net earning may not conform
and may not be an appropriate major of the ability of firm to pay dividends. (Van
Horne, 2000, p.350)

Dividend policy refers to the issue of how much of the total profit a firm should pay
to its stockholders and how much to retain for investment so that the combined
present and future benefits maximize the wealth of stockholders. The dividend
policy, however, not only specifies the amount of dividend, but also form of
dividend, payment procedure etc.

Dividend policy according to the application could be categorized as follows:

a. Stable dividend policy

When the firm constantly pays a fix amount of dividend and maintains it for all
times to come regardless of fluctuations in the level of its earnings, it is called a
stable dividend policy. This policy is considered as a desirable policy by the
management of companies. Most of the shareholders also prefer stable dividends
because all other things remaining same, stable dividends 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. Three of the common
used dividend policies are:

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i) Constant dividend per share

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 earnings of the
company. The policy does not imply that the dividend per share or dividend rate
will never be increased. When the company reaches new level of earnings and
expects to maintain it the annual dividend per share may be increased. Investors
who have dividends as the only source of their income prefer the constant dividend
policy.

ii) Constant payout ratio

The ratio of dividend to earning is known as payout ratio. When fixed percentage of
earnings is paid as dividend in every period, the policy is called constant payout
ratio. Since earnings fluctuate, following this policy necessarily means that the
rupee amount of dividends will fluctuate. It ensures that dividends are paid when
profits are earned, and avoided when it incurs losses.

iii) Low regular plus extra policy

The policy of paying a low regular dividend plus extras in a compromise between a
stable dividend (or stable growth rate) and a constant payout rate. Such a policy
gives the firm flexibility, yet investors can count on receiving at least a minimum
dividend. It is often followed by firms with relatively volatile earnings from year to
year. The low regular dividend can usually be maintained even when earnings
decline and extra dividends can be paid when excess funds are available.

b. No immediate dividend policy

If the company does not declare dividend unless the company earn large income is
called no immediate dividend policy. In other words, if there is not any hurry about
dividend payment and if it could be paid only when the company earns more profit

18
is known as no immediate dividend policy. This policy is usually pursued the
following circumstances:

• When the firm is new and rapidly growing concern, which needs large
amount of funds to finance its expansion program,
• When the firms’ excess to capital market is difficult,
• When availability of funds is costlier,
• When stockholders have agreed to accept higher return in future.
In fact, this policy should follow by issue of bonus shares.

c. Regular stock dividend policy

If the company regularly pays dividends to its shareholders in stock instead of cash,
then it is called regular stock dividend policy. Regular stock dividend policy is ale
designated as bonus shares. Such policy should follow under the following
circumstances:

• When the firm needs cash generated by earning to cover its modernization
and expansion of projects.
• When the firm is lacking in cash despite high earning, this is particularly true
when the firm’s sales is affected through credit and entire sales proceeds are
tied in receivables.

d. Irregular dividend policy

It is the policy in which, the firm does not pay any fixed amount of dividend every
year or dividend varied in correspondence with change in level of earning, i.e.
higher earnings means higher dividend and vice-versa. The firm with unstable
earnings also adopts this policy, when there are investable opportunities the
company retains more and when there is not any investable opportunities, the
company distributes the earning as dividend or there is not regularity of dividend
payment therefore it is the most used type of dividend policy in the Nepalese
context at present.

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e. Irregular dividend policy

This policy is based on the premise that investors prefer to have a firm retain and
reinvest earnings rather than pay out them in dividends if the rate of return the firm
can earn on reinvested earnings exceeds the rate of return investors can obtain for
themselves on other investments of comparable risk. Further, it is less expensive for
the firm to use retained earnings than is to issue new common stock.

2.3 Factors affecting Dividend Policy

2.3.1 Legal Requirements

The legal rules provide that the dividends must be paid from earnings either form
the current year’s earnings or from past years’ earnings as reflected in the balance
sheet account ‘retained earnings’. State laws emphasize three rules:

a) Capital impairment Rules

The firm cannot pay dividend out of its paid up capital. If it does so there would be
reduction in the capital that would affect the creditors of a corporation.

b) Insolvency Rule

This rules state that cash dividend should be prohibited, if the company is insolvent.
Insolvency in the legal services defined as the situation when the recorded value of
liabilities exceeds the recorded value of assets. Similarly in the technical sense, it is
the firm’s inability to pay its current debtors.

c) Net profit rule

This rule provides that dividend can be paid form past and present earnings.

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2.3.2 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 available to make dividend payment. Thus, the company must have
adequate cash available as well as retained earning to pay dividends.

2.3.3 Access to the capital markets

A large, well-established firm with a record of profitability and stability of earnings


has easy access to capital markets and other forms of external financing. A small,
new or venturesome firm, however, is riskier for potential investors. Its ability to
raise equity or debt funds from capital markets is restricted, and it must retain more
earnings to finance its operations. A well-established firm is thus likely to have a
higher dividend payout ratio than a new or small firm.

2.3.4 Need to repay debt

Firms may have the policy to retire its past debts by means of retained earning. If
such alternative are being adopted then such firm will retain more and pays less
dividend.

2.3.5 Restrictions in debt contracts

Debt contracts, particularly when long-term debt is involved, frequently restrict a


firm’s ability to pay cash dividends. Such restrictions, which are designed to protect
the position of the lender, usually state that (I) future dividends can be paid only out
of earnings generated after the signing of the loan agreement (i.e. they can not paid
out of past retained earnings) and (ii) that dividends cannot be paid when net
working capital is below a specified amount. Similarly, preferred stock agreements
generally state that no cash dividends can be paid on the common stock until all
accrued preferred dividends have been paid.

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2.3.6 Growth rate of firm
A rapidly growing concern will have constant needs of long-term funds to seize
favorable opportunities for which it has to retain more and pays less dividend.

2.3.7 Control

Another important variable is the effect of alternative sources of financing on the


control situation of the firm. As a matter of policy, some corporations expand only
to the extent of their internal earnings. This policy is defended on the ground that
raising funds by selling additional common stock dilutes the control of the dominant
group in that company. At the same time, selling debt increases the risks of
fluctuating earnings to the present owners of the company. Reliance on internal
financing in order to maintain control reduces the dividend payout.

2.3.8 Stability of earnings

A firm that has relatively stable earnings is often able to predict approximately what
its earnings will be. Such a firm is therefore more likely to pay out a higher
percentage of its earnings than a firm with fluctuating earnings. The unstable firm is
not certain that in subsequent years earning will be realized, so it is likely to retain a
high proportion of current earnings. A lower dividend will be easier to maintain if
earning fall off in the future.

2.3.9 Tax position of shareholders

The tax position of a corporation’s owners greatly influences the desire for
dividends. For e.g. a corporation owned by largely taxpayers in high income tax
brackets tend toward lower dividend payout where as corporations owned by small
investors tend toward higher dividend payout.

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2.4 Payment Procedure followed by Companies

The actual payment procedure is of some importance, and the following is an


outline of the payment sequence.

1. Declaration date: This is the day on which board of directors declares the
dividend. At this time they set the amount of the dividend to be paid, the
holder-of-record date and payment date.

2. Holder-of-record date: This is the date the company opens the ownership
books to determine who will receive the dividend; the stockholders of record
on this date receive the dividend. In that date, the company closes its stock
transfer books and make up a list of the shareholders as of that day.
3. Ex-dividend date: The date when the right to the dividend leaves the stock is
called the ex-dividend date. In this case, the ex-dividend date is four days
before holder of record date. Therefore if someone wants to receive the
dividend, he/she must buy the stock four days before the holder of record day.

4. Payment date: This is the day when dividend checks are actually mailed to
the holders of record. (Weston and Copeland, 1992, p. 658)

2.5 Ex- dividend Day Tests

The ex-dividend test involved the ex-dividend behavior of common stock prices.
Investors buying the stock before ex-dividend date are entitles to the dividend
declared; purchases on or after the ex-dividend date are not entitled to the dividend.

In one of the earliest published studies on the ex-dividend stock price anomaly is
that of Campbell and Beranek (1955) who reversed the general view that stock
prices drop by the full dividend amount on ex-days. Using data from the NYSE
stocks, they observed that the ex-dividend price drop was 90% of the dividend

23
amount. Durand and May (1960) conducted another seminal work examining the
ex-dividend day behavior of American Telephone and Telegraph stock (ATandT)
for a time series of 43 consecutive dividends. They found that the average price
change from the cum-dividend day to the ex-dividend day was $2.16, or about 4
percent less than the $2.25 dividend.

Elton and Gruber (1970) were the first researchers that offered a reasonable
explanation for the ex-dividend stock price anomaly. Using a one-year sample with
4,148 dividends, Elton and Gruber (1970) confirmed that ex-day stock prices tend to
fall by significantly less than the dividend and developed a model explaining the
effect known as “the long-term trading hypothesis” or “the tax-effect hypothesis”.
Elton and Gruber showed that when dividends are taxed at a higher rate than capital
gains, the stock price must drop by less than the dividend for investors to be
indifferent between (i) selling the stock cum-dividend and (ii) holding the stock,
receiving the dividend, and selling ex-dividend. Hence, in case that an investor
decides to sell on the cum-dividend day he receives the cum-dividend price (Pc) and
he pays tax at the capital gains rate (tg) on the excess of the cum-dividend price over
to the price at which the share was bought (Po). On the other hand, if he decides to
sell ex-dividend, he receives a dividend and the ex-dividend price (Pe) but he pays
tax on the dividend at the dividend tax rate (td) and he pays tax on the excess of the
ex-dividend price (Pe) over to the price at which the share was bought at the capital
gains tax rate (tg). The above relationship is given by:

Pc – (Pc-Po)tg = Pe – (Pe - Po) tg + D (1- td) (1)

Rearranging Equation (1) we get:

Pc − Pe 1 − td
=
D 1 − tg

Elton and Gruber (1970) argued that the statistic1 (Pc -Pe )/ D (or ∆ P/D) must then
reflect the marginal tax rates of the marginal stockholders and one should be able to
infer these tax rates by observing the above ratio.

24
Elton and Gruber (1970) sorted their sample into deciles by the dividend yield and
computed the mean ∆ P/D for each group. They found that NP/D generally increase
with the dividend yield, suggesting that investors in lower tax brackets prefer stocks
with higher dividend yields, while higher-bracket investors prefer lower-yield
stocks. Thus, Elton and Gruber (1970) confirmed the existence of the “dividend
clientele effect” as firstly proposed by Miller and Modigliani (1961).

Frank and Jagannathan (1998) examined the ex-dividend day stock price behavior in
the Hong Kong market, where neither dividends nor capital gains were taxed and
unlike in the NYSE, in the Hong Kong Stock Market (HKSE) there were no market
makers until 1993. They found that stock prices dropped on the ex-dividend day by
half the dividend amount. Frank and Jagannathan argued that the unexpected price
drop on the ex-dividend day was the result of transactions on the cum-dividend day
occurring at the bid price, while transactions on the ex-dividend day took place at
the asked price. That is, since for the average investor it is a burden to receive the
dividend and then go through the process of collecting it, most investors prefer not
to receive it. Market makers, instead, find themselves in a better position to collect
the dividend, so they buy the stock on the cum-dividend day. As a consequence, on
the cum-dividend day most trades occur at the bid price, while on the ex-dividend
day most trades occurred at the asked price. (Dasilas, 2007, p.1-8)

Similarly other many studies have been made in this matter. In a number of these
studies, the evidence is consistent with the previous, namely, that stock prices
decline on the ex-dividend day but less than the amount of the dividend. (Bhattarai,
2007, p.393)

2.6 Quality Rating of Companies in Nepal

Nepalese capital market is still lacking an independent quality rating agency. But,
NEPSE, the sole secondary market of Nepal, categorizes the listed companies into

25
two categories: Category “A” and Category “B”, on different criteria. According to
the NEPSE criteria, only those companies are included in “A” categories that have:

• Paid-up capital exceeding Rs. 20 million


• Reported profit for the last three consecutive fiscal years
• Have at least 1,000 shareholders
• Shares of the company should be trading in the stock exchange for a price
above the face value
• The company should have submitted the annual report to NEPSE within six
months of the end of the fiscal year.

Organizations not falling under these criteria are kept in “B” category. If not
fulfilled the criteria for long-term by the financial institutions they are de-listed by
the NEPSE. (Bhattarai, 2006, p. 298)

2.7 Legal Provision Regarding Dividend Practice in Nepal

Company Ordinance, 2005 makes some legal provision for dividend payment in
Nepal. These provisions may be seemed as under:
Dividends and subsections of this section are as follows

Section 46: Shareholder and Debenture-holder Register Book

Subsection (1)

Every company should establish shareholder and debenture-holder register book as


prescribed by law at company registrar office.

Subsection (2)

1. Following description should be clearly mentioned in the shareholders’


register book:

26
a) Shareholder’s full name and address.
b) No. of shares holding by shareholder.
c) Total amount paid by shareholder and remaining balance if any.
d) Registered date of shareholder’s certificate.
e) Cancellation date of shareholder’s certificate.
f) Ownership right on share after the death of the registered shareholder.

Section 182: Dividend

Subsection (1)

Expect in the following circumstances, dividend shall be distributed among the


shareholders within 45 days from the date of decision to distribute them,

a) In case any law forbids the distribution of dividends.


b) In case of right to dividend is disputed.
c) In case dividends cannot be distributed within the time limit mentioned
above owing to circumstance beyond anyone’s control and without any
fault on the part of the company.

Subsection (2)

Government owned companies either fully or partly can’t issue dividend without
permission of government and also necessary direction in the matter of dividend.

Subsection (3)

In case dividends are not distributed with the time limit mentioned in subsection
(1), adding interest at prescribed rate.

Subsection (4)

Only the person whose name stands registered in the register of existing share
holders at the time of declaring the dividend shall be entitled to it.

27
Subsection (5)

The Company can’t issue any form/amount as dividend expected separate reserve
amount for the distribution of dividend.

Subsection (6)

The Company should deduct the operating cost, deprecation amount, payable,
adjustment for previous year’s losses by-law before distributing dividend from
profit.

Subsection (7)

Under this section company can distribute interim dividend if it is provisioned in


rules and if the dividend is verified by audit report and attested by the BOD.

Subsection (8)

Except the amount declared from AGM, the company cannot distribute dividend
from fund affecting the company’s reserve.

Subsection (9)

If the shareholder does not come to take the dividend within the five F/Y from the
declaration date, the amount would be safe guarded according to section 186 of
company act.

Subsection (10)

If any shareholder comes to take the dividend amount according to section 183
within 1 month of before the expiry date, the notice should be published publicly in
national daily.

28
Subsection (11)

After the dividend declared form AGM, the company should establish separate book
of account within 45 days and distribute to the shareholders and the amount should
not be used for other purpose by the company.

2.8 Review of the International Studies

Linter (1956) conducted a study, which is focused in the behavioral aspect of


dividend policy. He investigated dividend pattern of 28 different companies of
America and found that, firm generally predetermines the desired payout and tries to
achieve it and rarely considers other factors. The model developed firm is his
research is as follows:

DIV*t= pEPSt …………………………………….. (i)


and, DIVt- DIVt-1=a+b (DIV*t- DIVt-1) +e1…….…… (ii)
Or, DIVt=a+b DIV*t+ (a+b) DIVt-1 +e1…………… (iii)

Where,

DIV*t = Firm’s desired payment


EPS = Earning per share
p = Targeted payout ratio
a = Constant relating to dividend growth
b = Adjustment factor relating to the previous period’s dividend and new
desired level or dividend where b<1.

Major finding of this study are as follows:

• Firms generally prefer desired proportion of earning to be paid as dividend.


• Investment opportunities are not considered for modifying the pattern of
dividend behavior.

29
• Firm generally have target payout ratios in view while determining change
in dividend per share.

Walter (1957) has proposed a model for share valuation which supports the view
that the dividend policy of the firm has impact on share valuation. His works shows
clearly the importance of the relationship between the firm’s internal rate of return
on investments (r) and its cost of capital (k) in determining the dividend policy that
will maximize the wealth of shareholders. Walters’s model is based on the
following assumptions (Chandra, 1999, p.302)

• Retained earnings represent the only source of financing for the firm.
• The return on the firm’s investment remains constant.
• The cost of the capital for the firm remains constant.
• The firm has an infinite life.

Walter’s formula to determine the market price per share is as follows.

DPS r(EPS − DPS)/k DPS + r(EPS − DPS)/k


P= = =
k k k
Where

P = Market price per share


DPS = Dividend per share
EPS = Earning per share
r = Internal rate of return on investments
k = Cost of capital

In Walter’s model the optimum dividend policy depends on the relationship


between the firm’s internal rate of return on investment (r) and its cost of capital (k).
Walter’s view of the optimum dividend payout ratio can be summarize as follows:

30
Growth Firm r>k

Firm having r>k may be referred as growth firm. The optimum payout ratio for a
growth firm is 0. The market price per share increases as payout ratio decreases.

Normal Firm r=k

Firm having r=k may be referred as normal firm. There is no unique optimum
payout ratio for a normal firm. One dividend policy is a good as the other. The
market price per share is not affected by the payout ratio when r=k. The payout ratio
for a normal firm is irrelevant.

Declining Firm r<k

Firm having r<k may be referred as declining firm. The optimum payout ratio for a
declining firm is 100%. The market price per share increases as payout ratio
increases.

Thus, in Walter’s Model the dividend policy of the firm depends on the availability
of investment opportunities and the relationship between the firm’s internal rate of
return (r) and its cost of capital (k).
The firm should use earning to finance investment if r>k, should distribute all
earnings when r<k and would remain indifferent when r=k.

Modigliani and Miller’s (1961) model (M-M) dividend policy of the firm is
irrelevant. It doesn’t affect the wealth of the shareholder. They argue that the value
of the firm depends on the firms earning, which result from its investment policy.
The literature suggests that dividend payments should have no impact on
shareholders value in the absence of taxes and market imperfections. Hence,
companies should invest excess funds in the positive net present value projects
instead of paying out them to the shareholders.

31
Modigliani and Miller’s model hypothesis of irrelevance is based ion the following
assumptions. (Pandey, 2002, p.756)

• The firm operates in perfect capital markets where investors behave


rationally, information is freely available to all and transaction and floatation
cost do not exist. Perfect capital markets also imply that no investor is large
enough to affect the market price of share.
• Taxes do not exist or there is no difference in the tax rate applicable to the
capital gains and dividends. This means that investors value a rupee of
dividend as much as a rupee of capital gains.
• The firm has a fixed investment policy.
• Risk of uncertainty does not exist i.e. investors are able to forecast future
prices and dividend with certainty and one discount rate is appropriate for all
securities and all time periods. Thus, r=k=kt for all t.
Modigliani and Miller’s Model provide falling model to prove their theory.

Market Value of Share

The market value of share at the beginning of the period is equal to the present of
dividend paid at the end of the period plus the market price of the share at the end of
the periods. Symbolically,
D1 + P1
P0 = (i)
1+ k
Where

P0 = Market price of share at the beginning of the period


D1 = Dividend of the share at the end of the period
P1 = Market price per share at the end of the period
k = Cost of the equity capital

32
No External Financing

If no external financing exist the market value of firm can be computed by


multiplying both sides by number of outstanding shares as follows:

n (D1 + P1 )
V= nP0= (ii)
1+ k
Where

V = Total value of the firm


n = Number of shares outstanding

New Shares

If retain earning is not sufficient to finance the investment opportunities, issuing


new shares is the other alternatives. Assuming that m is the number of newly issued
equity share at the price of P1 the value of firm at time 0 will be:

nD1 + (n + m )P1 − mP1


nPo = (iii)
1+ k
Where

nPo = Total market value of outstanding shares at time 0


n = Number of outstanding shares at time 0
nD1 = Total dividends in year 1 payable on equity shares
outstanding at time 0
m = Number of outstanding shares at time 1 at price P1
(n+m)P1 = Total market value of all outstanding shares at time 1
mP1 = Market value of shares issued at time 1
k = Discount rate

Total numbers of shares

A firm can pay dividends and raise funds to undertake the optimum investment
policy. The firm finances all investment opportunities either by issue of new shares
or retained earnings or both. Thus the amount of new shares issues will be:

mP1 = I1 – (E – nD1) (iv)

33
Where

I1 = Total investment at time 1


E = Total net profit of the firm
E-nD1 = Retained earning

Substituting equation (iv) to equation (iii) we get

nP0=
(n + m )P1 − I1 + E
1+ k

A firm, which pays dividends, will have to raise funds externally to finance its
investment plans. Modigliani and Miller’s argument, that dividend policy does not
affect the wealth of the shareholders, implies that when firm pays dividends, its
advantage is offset by external financing. This means that the terminal value of the
share decline when dividends are paid .Thus, the wealth of shareholders dividend
plus terminal price remains unchanged. As a result, the present value per share after
dividends and external financing is equal to the present value per share before the
payment of dividends. Thus the shareholders are indifferent between payments of
dividends and retention of earnings.

Gordon (1962) develops own very popular model explicitly relating the market
value of the firm to dividend policy. Gordon made a study on the dividend policy
and market price of the stock and concluded that the dividend policy of a firm
influences the market value of stock. He explained the investor’s preferred present
dividend rather that future capital gains. He further explained that the dividend
policy has direct relation with the value of stock even if the internal rate of return is
equal to the required rate of return.

Gordon’s model is based on the following assumptions:

• The firm is an all equity firm.

34
• No external financing is available. Consequently retain earning would be
used to financial expansion.
• The internal rate of return (r) of the firm is constant. This ignores the
diminishing marginal efficiency of the investment.
• The appropriate discount rate (k) for the firm remains constant.
• The firm and its stream of earning are perpetual.
• The tax does not exist.
• The relation ratio (b) ones decide upon, is constant. Thus the growth rate
g=br, each constant forever.
• k>br =g. if this condition is not fulfilled, we can’t get a meaningful value for
the share.

According to Gordon’s Dividend Capitalization Model the market value of a share


is equal to the present value of an infinite stream of dividend to be received by the
share. Thus:
D1 D2 Dn
P0 = + .............. +
(1 + k )
1
(1 + k ) 2
(1 + k )n1

Gordon has further developed the following equation for the computation of the
market value of stock.
EPS (1 – b)
P = (Ke – br)
Where

P = market price per share


EPS = earning per share
b = retention ratio
ke = cost of capital
1-b = payout ratio
br = growth rate

Gordon’s relevant theory is a popular theory of dividend as investor’s prefer current


dividends earnings rather than expected higher future income so as to eliminate the

35
risk associated with future capital gain. Gordon stressed that the higher payout
increases the dividend yield and hence increases the value of stock. But the
assumption of this model is also far from the reality. (Pandey, 2002, p.751)

Friend and Puckett (1964) conducted a study on the relationship between dividend
policy and price of stock by running regression analysis on the data taken from 110
firms from five industries in the year 1956 to 1958. Industries taken as samples were
chemicals, electric utilities, food, steels, and electronics. These industries were
selected to permit a’ distinction made between the results for growth and non-
growth industries and to provide a basis for comparison with the results by other
authors for earlier years. They also considered cyclical and non-cyclical industries
in their study. The study period covered a boom year for the economy when stock
prices leveled off after rise (1956) and a depressed for the economy when stock
prices, however rose strongly (1958). They used dividends, retained earnings and
price earning ratio as independent variable in their regression model of price
function and dividends as supply function. Earnings, previous year’s dividend and
price earning ratio are independent variable in the dividend function. Symbolically,
their price function and dividend supply function are as follows:

Their study based on the following assumption:

• Dividends react with year-to-year fluctuation in earnings.


• Price doesn’t contain speculative components.
• Earnings fluctuation may not sum zero over the sample.

The regression results based on the equation of:

Pt= a + b Dt + CRt+dh(E/P)t-1 shows the customary strong dividend and relatively


weak retained earning in three of the five industries, i.e. chemicals, foods and steels.
They again tested other regression equation by addition of lagged earning price ratio
to the above equation and result the following equation:

Pt= a + bDt + CRt+d(E/P)t-1

36
Where,

Pt= Per share price at time t


Dt= Dividends at time t
Rt= Retain earning at time t
(E/P)t-1= Legged earning price ratio
Dividend supply function Dt= e + fEt +gDt-1 +d(E/P)t-1
Where,
Et= Earning per share at time t
Dt-1= Last year dividend

They found that more than 80% of the variation in the stock price could be
explained by three independent variables. Dividends have predominant influence of
stock price in the same three out of five industries but they found the difference
between the dividend and retained earnings coefficient are not quite so marked as in
the first set of regression. They also found that the dividend and retained earning
coefficient are closer to each other for all industries in the both the years except for
steels in 1956 and the correlations are higher again except for steels.

They also calculate the dividend supply equation (Dt= e + fEt +gDt-1 +d(E/P)t-1)
and derived price equation for four-industry group in 1958. The derived price
equation showed that there were no significant changes’ from those obtained in the
single equation approach as explained above. They argued that the stock price or
more accurately the price-earning ratio does not seem to have a significant effect on
dividend payout. On the other hand they noted that the retained earnings effect
increased relatively in the three of the four cases tested. Further their result
suggested, price effects on dividend supply are probably not a serious source of bias
on the customary deviation of dividend and retained earnings effects of short-term
income movement are sufficiently great. Further they used lagged price as a variable
instead of lagged earning price ratio and showed that more than 90 percent of
variation in stock prices can be explained by three independent variables and

37
retained earnings received greater relative weight than dividends in most of the
cases. The only exception was steels and food in 1958. They considered chemicals,
electronics, and utilities as growth industries in these groups and the retained
earnings effect was larger than the dividends effect for both the years covered. For
the other two industries, namely food and steels, there was no significant systematic
difference between the retained earnings and dividends coefficient.

Similarly, they tested the regression equation, Pt = a + bD, + cR, by using


normalized earnings again, which they obtained by subtracting dividends from
normalized earnings. This process of normalized earnings was based on the period
1950 to 1961. They again added prior year’s normalized earning price variable and
compared the results and found that there was significant role of normalized
earnings and retained earnings but the effect of normalized price earning ratio was
constant. When they examined the later equation they found that the difference
between dividend and retained earnings coefficient disappeared. Finally they
conclude that management might be able to increase price somewhat by raising
dividend in food and steel industries.

They conducted more detailed examinations of chemical samples which disclosed


that the result obtained largely reflected the undue regression weighting given the
three firms with price deviating most from the average price in the sample of twenty
firms and retained earnings as a price determinant.

Finally, Friend and Puckett concluded that, management might be able, at least in
some measure, to increase stock prices in non-growth by raising dividends payout
and in growth industries by greater retention.

Foong, Zakaria, and Tan (2007) investigated the relationship between individual
stock returns with dividend yield, dividend stability and changes in dividend yield
from 1992 to 2000 in the Malaysian Trading/Services and Plantation firms. The
statistical result from annually cross-sectional regression show weak evidence to
support the significant role of dividend yield and dividend stability in explaining

38
firm stock returns. Changes in dividend yield, on the other hand, have negative and
significant coefficients in explaining stock returns in Trading/Services firms
throughout 1993-1996 and the average crisis period. For Plantation firms, it is
negatively significant only in 1994 and 1997.

The main purpose in conducting this study was to identify the role of dividend in
explaining Malaysian firm stock returns. They tested the relationship of firm stock
returns with the so-called the dividend related variables, comprising dividend yield,
dividend stability and changes in dividend yield.

Although they do not obtained very strong results that the dividend related variables
are the main factors explaining firm stock returns, they do find that changes in
dividend play some role in explaining firm stock returns, especially of the
Trading/Services firms, which are essentially representing growth firms. If this
holds true across the whole Malaysia listed firms, this suggests that CEO and top
management of growth firms should pay careful attention to the changes of dividend
yield in their firms, which has an inverse relationship with the stock returns.

The frequent changes in firm dividend policy may be particularly useful in


attempting to differentiate high value firm from their low-value counterparts that
have high dividend payout levels. The negative sign documented implies that the
lower the changes in the dividend yield, the higher the stock returns. This suggests
that the management should try to minimize changes in the dividend yield.
Smoothing dividends payment over time can push the stock price to higher level.
Another option is to maintain the level of dividend yield by adjusting the dividend
payment relative to the stock price. Furthermore, announcing changes in the level of
dividend payment provides important information to investors and must be carefully
considered. This will eventually maximize the firm value; follow by the
maximization of shareholder wealth.

Uddin (2003) empirical results based on 137 samples of dividend paying companies
listed on Dhaka Stock Exchange (DSE) showed that investors do not gain value

39
from dividend announcement. Indeed shareholders lost about 20 percent of value
over a period of 30 days prior to the dividend announcement through to 30 days
after the announcement. The lost value may be partially compensated because of the
current dividend yield. Overall, the evidence tends to support the dividend
irrelevancy hypothesis. Evidence also indicates that dividend payment does not
signal any information to the investors.

The study shows that the highest average dividend was paid in the Fuel and Power
sector, followed by that in the banking sector. The highest dividend was announced
in the food sector, and lowest in the Jute and Services sectors. In Jute sector, only
one company announced dividend during the sample period. The average dividend
was 19.5 percent with standard deviation of 12.9 percent. Overall, the study shows
that the sample includes stocks from all sectors, except the paper sector. The
number of samples are also fairly equally distributed with 10 to 20 stocks from each
sector except Paper, Jute and Services sectors. This is also noted that out of 137
companies, 34 companies announced dividend in 2001 and 103 in 2003. Sample
also displays that 108 companies belong to A category, 17 belong to B category and
12 belong to Z category.3

Fama and Babiak (1968) study has proven that there is significant positive
relationship between the change of a firm’s dividend payment and change in its
stock price. Fama and Babiak (1968) find a time series relation between annual
dividends and earnings that is consistent with the view that dividend paying firms
increase their dividend only when management is relatively confident that their
higher payment can be maintained. Their view is supported by Capstaff, et al.
(2004), who found that stock market reaction is more pronounced for large, positive
dividend announcements that are followed by permanent cash flow increases.

Anagho and Tah (2007) in their case study "The ex-dividend day stock price
behavior," studied the movement of ex-dividend day stock price behavior for the
FTSE100 stock index for the period 2001 to 2006. The study was carried out by

40
comparing the actual value of the raw price ratio, market adjusted price ratio, raw
price drop and market adjusted price drop to their theoretical values. The difference
was tested for significance using the one sample t-test. The results showed that there
are significant differences in the observed figures from their theoretical or expected
values. The observed raw price ratio is higher than the expected value of 1, implying
that the stock price on the ex-dividend day drops by an amount that is higher than
the dividend paid. Similarly, the market adjusted raw price ratio is also higher than
the expected value of 1. The raw price drop and market adjusted price drop are
lower than the dividend yield, indicating again that the stock price drops by an
amount that is less than the dividend paid. The study is inconsistent with the
findings by Nikolas et al (2006), who studied the ex-dividend day stock price
behavior in the SHSE and SZSE indices of the Chinese Stock Exchange using a
similar method but consistent with Alm et al (1999) who carry out a study using the
Stockholm stock exchange where his findings showed that the stock price drop on
average is less than the dividend been paid out.

• Raw Price Ratio (RPR) is the drop in share price expressed as a fraction of
the difference between the cum-dividend price and the ex-dividend price all
over the actual dividend paid. Under normal circumstances, that is, where
there are no arbitrage opportunities and where the market efficiency
hypothesis is assumed to be true, the theoretical value of the raw price ratio
should be equal to 1.

• Market Adjusted Price Ratio (MAPR) is the difference between the cum-
dividend price and the market adjusted ex-dividend price expressed as a
fraction of the actual dividend. Similarly under perfect capital markets, the
theoretical or expected value of the market adjusted raw price ratio is equal
to 1.

• Raw Price Drop (RPD) is the difference between the cum-dividend price and
the ex-dividend price expressed as a fraction of the cum-dividend price. In

41
perfect capital markets, the hypothesized value of the raw price drop is
equivalent to the dividend yield.
• Market Adjusted Price Drop (MAPD) is the difference between the cum-
dividend price and the market adjusted price expressed as a fraction of the
cum-dividend price. Also, under perfect capital markets, the market adjusted
price drop is equivalent to the dividend yield.

2.9 Review of the Thesis

Adhikari (2063) in his study on “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. There was also no stability in the
dividend payout ratio of the commercial banks. Thus he has recommended the
investors to consider the select company having high profit companies for
purchasing shares.

Bista (2062) in his study on the “Dividend Policy and Practices of Listed Joint
Venture Commercial Banks and Manufacturing Companies” found that there was a
positive correlation between DPS and MPS of commercial banks whereas no
correlation was found in manufacturing companies.

Bhattarai (2052) his 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. 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.

42
2.10 Concluding Remarks

The empirical testing has been proved that ex-day stock price tend to fall by
significantly less than the dividend. They interpret the result as consistent with a
clientele effect where investors in high tax brackets show a preference for capital
gains over dividends and vice versa. Another study examining the ex-dividend day
behavior of American Telephone and Telegraph stock for a time series of 43
consecutive dividends has found that the average price change from the cum-
dividend day to the ex-dividend day was $2.16, or about 4 percent less than the
$2.25 dividend.

Some argue that dividend policy of is irrelevant. It doesn’t affect the wealth of the
shareholder. They said that the value of the firm depends on the firms earning,
which result from its investment policy. Dividend payments should have no impact
on shareholders value in the absence of taxes and market imperfections.

Another study by Gordon on the dividend policy and market price of the stock and
concluded that the dividend policy of a firm influences the market value of stock
that explains the investor’s preferred present dividend rather that future capital
gains. He further explained that the dividend policy has direct relation with the
value of stock even if the internal rate of return is equal to the required rate of
return.

43
Chapter 3
Methodology

This chapter presents the short outline of the methods applied in the process of
analyzing the capital structure is a systematic method of finding out solution to a
problem whereas research methodology refers to the various sequential steps to
adopt by a researcher in studying a problem with certain objective in view.

3.1 The Research Design


For the analysis of the cash dividends payments of the “A” class financial
institutions of Nepal as categorized by NEPSE, analytical as well as descriptive
designs are applied to achieve the objective of the research.

3.2 The Population and Sample

3.2.1 Population

Mainly the “A” class financial institutions as categorized by NEPSE are the
population samples considered for the study.

3.2.2 Sample

Our sample is selected from firms listed on the NEPSE. This study focuses on the
“A” class financial institutions of Nepal. At present, there are 157 companies are
listed at NEPSE out of which 78 are categorized as “A” class financial institutions.

44
Out of which 23 financial institutions are taken covering 26.92% ≅27% of the
21
population as sample ( ×100%).
78

Commercial Banks

1. Development Credit Bank Ltd.


2. Everest Bank Ltd.
3. Himalayan Bank Ltd.
4. NABIL Bank Ltd.
5. Nepal Investment Bank Ltd.
6. Nepal SBI Bank Ltd
7. Standard Chartered Bank Nepal Ltd.

Development Banks

8. Chimeki Bikas Bank Ltd.


9. Nirdhan Utthan Bank Ltd.
10. Sanima Bikas Bank Ltd
11. Sahayogi Bikas Bank Ltd.

Finance Companies

12. Annapurana Finance Company Ltd.


13. Bhajuratna Finance and Saving Company Ltd.
14. Everest Finance Company Ltd.

Insurance Companies

15. Everest Insurance Company Ltd.


16. Himalayan General Insurance Company Ltd.
17. United Insurance Company (Nepal) Ltd.
18. Nepal Life Insurance Company Ltd.

Manufacturing and Processing Companies

45
19. Unilever Nepal Ltd.
20. Bottlers Nepal Ltd. ( Not an “A” Class Financial Institution)

Hydropower Companies

21. Chilime Hydropower Company Ltd.

3.3 Sources of Data

This research is based on secondary data. Required data is collected from NEPSE,
SEBON, previous thesis and various articles published by various people and
organizations. The basic sources of data used are as follows:

a. NEPSE and SEBON Annual Reports


b. Financial statements of concerned financial institutions
c. Related books and articles

3.4 Methods of Data Analysis

Mainly financial methods are applied for the purpose of this study. Appropriate
statistical tools are also used. Among them correlation analysis and hypothesis tests
regarded as major one used for this research.

3.5 Tools Used

3.5.1 Arithmetic Mean (A.M)

The mean is the figure we get when the total of all the values in a distribution is
divided by the number of values in the distribution. The arithmetic mean is also
known as the average. It should, however, be remembered that the mean can only be

46
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
scores are distributed symmetrically about the center of the distribution. This is
calculated by using following formulae:
3.5.2 Standard Deviation (S.D.)

The measurement of the scatterness of the mass of figure in a series about an


average is known as the 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. This is calculated as follows:

∴ Standard deviation (S.D.) =


∑ (X − X) 2

3.5.3 Coefficient of Variation (CV)

The coefficient of variance is the relative measure of dispersion, comparable across


distribution, which is defined as the ratio of the standard deviation to the mean
expressed in percent. It is calculates as follows:

S.D.
∴ Coefficient of Variation (CV) = × 100
Mean

3.5.4 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.

∴ Karl Pearson’s Correlation Coefficient (r) =


∑ xy
∑x ∑y
2 2

47
The value of “r” lies between -1 to +1. When r=0, then there is no correlation
between two variables.

3.5.5 T-statistics

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 the 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 the difference is significant at 5% level and vice-versa. The value is
calculated by using following formula:

X−µ
∴t =
S
n

3.5.6 F-statistics

ANOVA is a statistical technique especially designed to test whether the means of


more than two quantitative populations are equal. It is applied to find out whether
the two samples may be regarded as drawn form the normal population having the
same variance. The value of “F” is calculated as:

Variance between samples


∴F =
Variance within samples

48
Chapter 4
Presentation and Analysis of Data

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.

4.1 No. of Cash Dividend Paying Listed Companies

Table No. 4.1


No. of Cash Dividend Paying Listed Companies
F/Y Total Listed Companies Cash Dividend Paying Companies Ratio
2003/04 114 32 28.07%
2004/05 125 26 20.80%
2005/06 135 37 27.41%
2006/07 135 39 28.89%
2007/08 142 41 28.87%
Source: Annual Report of SEBON
Cash Dividend (In Rs.)

140
120
100
80
60
40
20
0
2003/04 2004/05 2005/06 2006/07 2007/08
Fiscal Year
Total Listed Companies Cash Dividend Paying Listed Companies

49
Figure No. 4.1 No. of Cash Dividend Paying Listed Companies

The number of Nepalese listed companies that paying cash dividend is seen
fluctuating. About 28% of the total listed companies distributed cash dividend
during the fiscal year 2003/04. But it decreases to 20.80% in the fiscal year 2004/05.
Thereafter the increase has been seen to the fiscal year 2007/08. Among the cash
dividend paying total financial institutions majority are from the banking sectors or
finance companies. Very few numbers of financial institutions are from
development banks, manufacturing and processing companies and hydropower
company.

From the correlation calculation we came to conclusion that there is very low degree
of positive correlation between the total no. of listed companies and the no. of cash
dividend paying listed companies. Though, the general public is highly attracted
towards the shares of the commercial banks of the country as they are performing
well in the secondary market. Similarly they are providing the stock dividend to the
shareholders. But the financial performance of other institutions is not so good.
Even majority of the commercial banks are also not providing good percentage of
the cash dividend to their shareholders.

Note: For detail calculation see Annex-I

4.2 Cash Dividend Payment of Sector-wise Financial Institutions

4.2.1 Cash Dividend Payment of Commercial Banks

Table No.4.2
Cash Dividend Payment of Commercial Banks (In NPR)
F/Y EBL NABIL NIBL SCBNL HBL SBI DCBL
2003/04 20 50 20 110 1.32 8 10
2004/05 20 65 15 110 CDND CDND 10
2005/06 20 70 12.58 120 11.5 CDND 12
2006/07 25 85 20 130 30 5 12

50
2007/08 10 100 5 80 15 10 12
A.M. 19 74 14.52 110 11.56 4.60 11.20
S.D. 4.90 17.15 5.56 16.73 10.86 4.08 0.98
C.V. 25.78% 23.17% 38.29% 15.21% 93.94% 88.69% 8.75%
Source: Annual Report of SEBON

140

120
Cash Dividend (In Rs.)

100

80

60

40

20

0
2003/04 2004/05 2005/06 2006/07 2007/08
Fiscal Year
EBL NABIL NIBL SCBNL HBL SBI DCBL

Figure No. 4.2 Cash Dividend Payment of Commercial Banks

Large amount of cash dividend paying “A” class commercial banks of the sample
are seen SCBNL. The average payment of cash dividend by SCBNL is Rs.110 per
share. In other word it paid average 110% cash dividend in average to its
shareholders. The least average percent was of SBI with only 4.60% cash dividend.
Being an “A” class financial institution SBI has not been able to declare cash
dividend to its shareholders. The amount it has declared also is also not seen so
satisfactory from the record than the other commercial banks.

The situation of the NABIL bank is also seen well. It has also been distributing cash
dividend regularly. The average cash dividend payment is seen 74% i.e. Rs. 74 per
share.

51
HBL payment of cash dividend has been seen fluctuating. The amounts it has paid
as a cash dividend is minor with average of Rs.11.56.

The C.V of the DCBL is the least among the sample commercial banks with 8.75%,
show the cash dividend payment of the bank is most consistent than other
commercial banks. The most inconsistent in paying cash dividend is HBL with C.V.
93.94%. The situation of SBI is also not good, it’s C.V, is also seen high.

4.2.2 Cash Dividend Payment of Development Banks

Table No.4.3
Cash Dividend Payment of Development Banks (In NPR)
F/Y SBBL NUBL CBBL SBB
2003/04 CDND CDND CDND CDND
2004/05 CDND CDND CDND CDND
2005/06 CDND 4 10 CDND
2006/07 CDND 5 30 CDND
2007/08 CDND CDND CDND 3.50
A.M. - 1.8 8.00 0.70
S.D. - 2.23 11.66 1.40
C.V. - 123.89 145.75 200%
Source: Annual Report of SEBON

52
35

Cash Dividend (In Rs.) 30

25

20

15

10

0
2003/04 2004/05 2005/06 2006/07 2007/08
Fiscal Year

SBBL NUBL CBBL SBB

Figure No. 4.3 Cash Dividend Payment of Development Banks

Being categorized as an “A” class development banks, the situation of cash dividend
payment of the bank is not seen good. Only NUBL and CBBL have been seen
paying the cash dividend in fiscal year 2005/06 and 2006/07 with average of Rs.
1.80 and Rs. 8 per share respectively. Other development banks have not seen
paying cash dividend since past five years.

4.2.3 Cash Dividend Payment of Insurance Company

Table No.4.4
Cash Dividend Payment of Insurance Companies (In NPR)
F/Y UIC NLIC HGI EIC
2003/04 CDND CDND CDND CDND
2004/05 CDND CDND CDND CDND
2005/06 CDND CDND CDND CDND
2006/07 CDND CDND CDND CDND
2007/08 CDND CDND CDND CDND
A.M. - - - -
S.D. - - - -
C.V. - - - -
Source: Annual Report of SEBON

53
The cash dividend situations of the Insurance Companies are not good in record.
None of the Insurance Companies listed as “A” class financial institutions have
declared cash dividend since past five fiscal year.

4.2.4 Cash Dividend Payment of Finance Company

Table No.4.5
Cash Dividend Payment of Finance Companies (In NPR)
F/Y AFC EFL BFL
2003/04 12 CDND CDND
2004/05 2.632 CDND CDND
2005/06 3.158 CDND CDND
2006/07 0.53 CDND CDND
2007/08 1.05 CDND 0.50
A.M. 3.87 - 0.10
S.D. 4.18 - 0.2
C.V. 108.01% - 200%
Source: Annual Report of SEBON

14

12
Cash Dividend (In Rs.)

10

0
2003/04 2004/05 2005/06 2006/07 2007/08
Fiscal Year
AFC EFL BFL

Figure No. 4.4 Cash Dividend Payment of Insurance Company

54
There is large no. of finance companies operating in Nepal. But most of them are
not able to operate in an efficient ways. Their financial position is not so sound to be
categorized as an “A” class financial institution. They are not been able to pay cash
dividend to their shareholders. AFC has been paying cash dividend with average of
Rs. 3.87 per share in last five fiscal year. BFL has been paid Rs. 0.50 per share cash
dividend in the fiscal year 2007/08.

4.2.5 Cash Dividend Payment of Manufacturing and Processing


Company

Table No.4.6
Cash Dividend Payment of Manufacturing and Processing Companies (In
NPR)
F/Y ULN BNL
BNL(Balaju) BNL(Terai)
2003/04 90 5 10
2004/05 100 CDND 5
2005/06 400 CDND CDND
2006/07 250 CDND CDND
2007/08 275 CDND CDND
A.M. 223 1 3
S.D. 116.26 2 4
C.V. 52.13% 200% 133.33%
Source: Annual Report of SEBON

55
450
400
Cash Dividend (In Rs.)
350
300
250
200
150
100
50
0
2003/04 2004/05 2005/06 2006/07 2007/08
Fiscal Year
ULN BNL (Balaju) BNL (Terai)

Figure No. 4.5 Cash Dividend Payment of Manufacturing and Processing


Companies

Under manufacturing and processing companies, only one company has been
included under the “A” class financial institution i.e. ULN. The company has been
paying the cash dividend regularly in the past five fiscal year. Similarly, the amount
of the cash dividend is seen increasing to fiscal year 2005/06 and it has been
decreased to Rs. 250 per share and have been slight increase of Rs. 25 per share in
fiscal year 2007/08. BNL is not included under the “A” class financial institution
but we have taken as a sample from the manufacturing and processing companies
for study. It has not been able to distribute cash dividend with good amount being
one of the renowned multinational soft drink company.

BNL (Terai) has paid cash dividend of Rs. 10 and Rs. 5 in the early fiscal years. The
C.V. of BNL (Terai) is lesser than that of BNL (Balaju).

4.2.6 Cash Dividend Payment of Other Company

56
Table No.4.7
Cash Dividend Payment of Other Company (In NPR)
F/Y 2003/04 2004/05 2005/06 2006/07 2007/08
CHPCL CDND CDND CDND 35 30
A.M. 13
S.D. 16
C.V. 123.08%
Source: Annual Report of SEBON

35
Cash Dividend (In Rs.)

30
25
20
15
10
5
0
2003/04 2004/05 2005/06 2006/07 2007/08
Fiscal Year
CHPCL

Figure No. 4.6 Cash Dividend Payment of Other Company

57
Under this sector only three companies are listed. They are National Hydropower
Company Ltd., Butwal Hydropower Company Ltd. and Chilime Hydropower
Company Ltd. CHPCL has declared Rs. 35 and Rs. 30 cash dividend in the fiscal
year 2006/07 and 2007/08 respectively. But in earlier fiscal year it has not been able
to declare cash dividend.

4.2.7 Cash Dividend Payment of Hotel

None of the institutions under the hotel sector has distributed cash dividend to its
shareholders since last five fiscal year except Soaltee Hotel Ltd. in fiscal year
2007/08 which pays Rs. 10 cash dividend per share. And even they did not come
under the “A” class financial institutions as categorized by NEPSE.

4.2.8 Cash Dividend Payment of Trading Company

Since none of the trading company come under “A” class even though they are
paying healthy amount of cash dividend to their shareholders since last five fiscal
year.

4.3. Ex-dividend Test (Empirical Testing)

4.3.1 For the Fiscal Year 2003/04

Table No.4.8
Price Effect after Cash Dividend Payment on Fiscal Year 2003/04 (In NPR)
S No Company Name MPS MPS on MPS Price Change
Before Ex-dividend After On Ex- After Ex-
Date dividend dividend
Date Date
1. DCBL 152 2003/11/12 157 +9 +5

58
161
2. SCBNL 1763 2003/12/05 1701 +12 -3
1775
3. EBL 445 2003/12/21 442 -1 -3
444
4. AFC 417 2003/12/21 350 -7 -67
410
5. NABIL 803 2004/01/04 798 -3 -5
800
6. HBL 995 2004/03/21 662 -5 -333
990
7. SBI 242 2004/03/28 243 -1 +1
241

From the above table we see that MPS of the five companies who declared the cash
dividend has declined on the ex-dividend date during the fiscal year 2003/04. The
large amount loser company was HBL with the MPS decline of Rs. 333. The MPS
of SCBNL was seen increased by Rs. 12 on the ex-dividend date.

4.3.2 For the Fiscal Year 2004/05

Table No.4.9
Price Effect after Cash Dividend Payment on Fiscal Year 2004/05 (In NPR)
S No Company MPS MPS on Ex- MPS Price Change
Name Before dividend After On Ex- After Ex-
Date dividend dividend
Date Date
1. EBL 687 2004/10/31 682 -2 -5
685
2. UNL 1487 2004/12/17 1500 +13 +13
1500
3. SCBNL 1860 2004/12/02 1839 -30 -21
1830
4. DCBL 201 2004/12/18 211 +7 +10
208
5. NABIL 1259 2004/12/22 1248 +6 -11
1265
6. NIBL 1152 2004/12/25 1160 +3 +8
1155

59
Principally, the MPS of the shares should decline on the ex-dividend date and after
this date after the declaration of the cash dividend by the companies. But from the
above data we see that the MPS of UNL, DCBL, NABIL and NIBL increased by
Rs.13, Rs.7, Rs.6 and Rs38 respectively. Only the MPS of EBL and SCBNL has
declined by Rs. 2 and Rs. 30 respectively on ex-dividend date and Rs. 5 and Rs. 21
after ex-dividend date.

4.3.3 For the Fiscal Year 2005/06

Table No. 4.10


Price Effect after Cash Dividend Payment on Fiscal Year 2005/06 (In NPR)
S. No. Company MPS MPS on Ex- MPS Price Change
Name Before dividend After On Ex- After Ex-
Date dividend dividend
Date Date
1. UNL 2180 2005/09/09 1845 +20 -335
2200
2. SCBNL 2392 2005/10/26 2373 +38 -19
2430
3. DCBL 257 2005/11/08 257 +8 -
265
4. NABIL 1660 2005/11/30 1645 -10 -15
1650
5. NIBL 792 2005/12/14 783 -7 -9
785
6. HBL 1135 2005/12/16 1119 +5 -16
1140
7. AFC 577 2005/12/26 420 +50 -157
627

Similar is the situation in the fiscal year 2005/06. The MPS of majority of the cash
dividend declaring companies is seen increased. Except the MPS of NABIL and
NIBL, majority of the company’s MPS has increased on ex-dividend date whereas
MPS of all the company has decreased after ex-dividend date. UNL lose Rs.335
after ex-dividend date. Similarly, AFC also lose Rs. 157 after ex-dividend date.

60
4.3.5 For the Fiscal Year 2006/07

Table No. 4.11


Price Effect after Cash Dividend Payment on Fiscal Year 2006/07 (In NPR)
S Company Name MPS Ex-dividend MPS Price Change
No Before Date After On Ex-dividend After Ex-
Date dividend Date
1. UNL 2823 2006/09/05 2833 -13 +10
2810
2. NABIL 2312 2006/10/22 2320 +28 +8
2340
3. NIBL 1447 2006/10/26 1712 -12 +265
1435
4. EBL 1328 2006/10/31 1421 +17 +93
1345
5. SCBNL 4285 2006/11/08 4357 +115 +72
4400
6. HBL 1303 2006/12/15 1301 -3 -2
1300
7. DCBL 809 2006/12/25 813 -4 +4
805
8. CBBL 102 2006/12/26 124 -3 +22
105
9. CHPCL 757 2007/01/08 795 +60 +38
817
10. SBI 790 2007/02/03 802 +10 +12
800

During the fiscal year 2006/07 five companies gain on ex-dividend date whereas
almost all the companies gain after ex-dividend date expect HBL lost Rs. 2 after ex-
dividend date. The largest gainer was SCBNL and NIBL with the increase of Rs.
115 and Rs. 265 before ex-dividend and after the ex-dividend date respectively.

61
4.3.5 For the Fiscal Year 2007/08

Table No. 4.12


Price Effect after Cash Dividend Payment on Fiscal Year 2007/08 (In NPR)
S Company Name MPS Ex-dividend MPS Price Change
No Before Date After On Ex-dividend After Ex-
Date dividend Date
1. EBL 2973 10/7/2007 2729 -18 -244
2955
2. HBL 2165 31-Dec-07 1973 -111 -192
2054
3. NABIL 4770 7-Oct-07 4285 -139 -485
4631
4. NIBL 1993 8-Nov-07 2311 127 -191
2120
5. SBI 1635 22-Feb-08 1286 -435 318
1200
6. 1052 11-Jan-08 1199 73 147
SBBL 1125
7. AFC 883 13-Jan-08 720 -243 -163
640
8. CHPCL 1063 10-Feb-08 1216 88 153
1151
9. NLIC 1644 24-Jun-08 1698 -84 54
1560

During the fiscal year 2007/08 four companies MPS decreased on and after ex-
dividend date. NIBL, SBBL and CHPCL companies MPS increased on ex-dividend
date and four companies MPS increased after ex-dividend date. The largest gainer
was the shares of NIBL with the increase of Rs. 127 on ex-dividend date and SBI
with the increase of Rs. 318 after ex-dividend date. SBI and NABIL lose more on
and after ex-dividend of Rs. 435 and Rs. 485 respectively.

4.4 Test of Hypothesis

Under this topic, an effort has been made to test the significance regarding the
parameter of the population based on drawn from the population. Generally, the
following steps are followed for the test of hypothesis.
i. Formulation of Hypothesis

62
ii. Computation of test statistic
iii. Fixing the level of significance
iv. Finding the criteria region
v. Deciding the two tailed or one tailed test
vi. Making decision

4.4.1 Test of Hypothesis on Cash Dividend Payments of Commercial


Banks

Null Hypothesis (Ho): µ1 =µ2 =µ3 =µ4 =µ5 =µ6 −=µ7 i.e. there is no significant
difference among mean cash dividend payment of commercial banks i.e. cash
dividend payment of commercial banks are homogenous.

Alternative Hypothesis (H1): µ1 ≠µ2 ≠µ3 ≠µ4 ≠µ5 ≠µ6 ≠µ7 i.e. there is a
significant difference among mean cash dividend payment of commercial banks.

Note: For detail calculation see Annex-III

Table No. 4.13


One-way AVOVA Table for Cash Dividend Payment of Commercial Banks

Source of Sum of Square d.f. Mean Square MSC


F ratio=
Variation MSE
Between samples SSC= k-1= MSC=
49307.19 MSC
F=
49307.19 7-1=6 6 MSE
=8217.86 8217.86
=
Within samples SSW= n-k= MSE=
3823.05 136.54
3823.05 35-7=28 28
=136.54
Total TSS=53130.24 n-1=34 F=60.19

Critical Value: The tabulated value of F at 5% level of significance for 6 and 34


d.f. is 2.42.

63
Decision: Since calculated F is greater than tabulated value, the null hypothesis, Ho
is rejected and hence the alternative hypothesis, H1 is accepted. Therefore, we
conclude that there is a significant difference among mean cash dividend payment
of commercial banks.

4.4.2 Test of Hypothesis on Cash Dividend Payments of Development


Banks

Null Hypothesis (Ho): µ1 =µ2 =µ3 =µ4 i.e. there is no significant difference among
mean cash dividend payment of development banks i.e. cash dividend payment of
CBs are homogenous.

Alternative Hypothesis (H1): µ1 ≠µ2 ≠µ3 ≠µ4 i.e. there is a significant difference
among mean cash dividend payment of development banks.

Note: For detail calculation see Annex-IV

Table No. 4.4


One-way AVOVA Table for Cash Dividend Payment of Development Banks

Source of Sum of Square d.f. Mean Square MSC


F ratio=
Variation MSE
Between samples SSC= k-1= MSC=
200.84 MSC
F=
200.84 4-1=3 3 MSE
=66.95 66.95
=
Within samples SSW= n-k= MSE=
714.60 44.66
714.60 20-4=16 16
=44.66
Total TSS=915.44 n-1=19 F=1.50

Critical Value: The tabulated value of F at 5% level of significance for 3 and 19


d.f. is 3.13.

64
Decision: Since calculated F is lesser than tabulated value, the null hypothesis, Ho is
accepted and hence the alternative hypothesis, H1 is rejected. Therefore, we
conclude that there is no significant difference among mean cash dividend payment
of development banks i.e. cash dividend payment of development banks are
homogenous.

4.4.3 Test of Hypothesis on Cash Dividend Payments of Manufacturing


and Processing Companies

Null Hypothesis (Ho): µ1=µ2 i.e. there is no significant difference among mean cash
dividend payment of manufacturing and processing companies i.e. cash dividend
payment of manufacturing and processing companies are homogenous.

Alternative Hypothesis (H1): µ1≠µ2 i.e. there is significant difference among mean
cash dividend payment of manufacturing and processing companies i.e. cash
dividend payment of manufacturing and processing companies are not homogenous.

Note: For detail calculation see Annex-V

Table No. 4.15


One-way AVOVA Table for Cash Dividend Payment of Manufacturing and
Processing Companies

Source of Sum of Square d.f. Mean Square MSC


F ratio=
Variation MSE
Between samples SSC=119902.50 k-1= MSC=
119902.5 MSC
F =
2-1=1 1 MSE
=119902.50 119902.50
=
Within samples SSW=67750 n-k= MSE=
67750 8468.75
10-2=8 8
=8468.75
Total TSS=187652.50 n-1=9 F=14.16

Critical Value: The tabulated value of F at 5% level of significance for 1 and 8 d.f.
is 5.32

65
Decision: Since calculated F is greater than tabulated value, the null hypothesis, Ho
is rejected and hence the alternative hypothesis, H1 is accepted. Therefore, we
conclude that there is significant difference among mean cash dividend payment of
manufacturing and processing companies i.e. cash dividend payment of
manufacturing and processing companies are not homogenous.

4.5 Major Findings

1. The no. of cash dividend paying companies listed at NEPSE is seen almost the
same in context of total listed companies since last five fiscal year except
2004/05 in which it comprise of 20.80 percent of total listed companies.

2. There is the low degree of positive correlation between the total number of
listed companies and the number of cash dividend paying listed companies.

3. Large amount of cash dividend paying “A” class commercial bank of the
sample is seen SCBNL. The average payment of cash dividend by SCBNL
was Rs.110 per share. Being an “A” class financial institution SBI has not
been able to declare cash dividend to its shareholders. EBL, NIBL, HBL and
DCBL have been seen declaring and paying the cash dividend regularly to its
shareholders.

4. Development bank’s payment of cash dividend is almost insignificant. Only


CBBL and NUBL has been seen paying cash dividend in two fiscal year
2005/06 and 2006/07 with an average of Rs. 1.80 and Rs. 8 per share.

5. The cash dividend payment condition of the insurance companies has not been
seen in sample. None of the insurance companies listed as “A” class financial
institutions also have not declared cash dividend since past five fiscal year
except some of the insurance companies declared bonus share.

66
6. Most of the finance company is not being capable of declaring cash dividend
to their shareholders. Only AFC has been paying cash dividend regularly, with
an average of Rs. 3.87 in the past five fiscal year.

7. Under manufacturing and processing companies, only one company has been
included under the “A” class financial institution i.e. ULN. The company has
been paying the cash dividend regularly. Similarly, the amount of the cash
dividend paid is also high than any other companies included in the sample.
BNL is not included under the “A” class financial institution but we have
taken as a sample from the manufacturing and processing companies for study.
It has not been able to distribute cash dividend with good amount being one of
the renowned multinational soft drink company. It has been paying cash
dividend with an average of Rs. 4 in the past five fiscal year.

8. Under the other company only three companies are listed. They are National
Hydropower Company Ltd., Butwal Hydropower Company Ltd. and Chilime
Hydropower Company Ltd. CHPCL has been categorized as “A” class
financial institution and it has declared Rs.35 as cash dividend and Rs. 30 as
interim dividend in the fiscal year 2006/07 and 2007/08 respectively. But in
earlier fiscal year it has not been able to declare cash dividend.

9. None of the institutions under the hotel and trading have distributed cash
dividend to its shareholders since last five fiscal year except Soaltee Hotel Ltd.
in fiscal year 2007/08 which pays Rs. 10 cash dividend per share.

10. Under ex-dividend test, the MPS of the nineteen companies who declared the
cash dividend has increased on the ex-dividend date and fifteen companies
after the ex-dividend date during the sample fiscal year. Similarly, the MPS of
the twenty companies who declared the cash dividend has declined on the ex-
dividend date and twenty three companies after the ex-dividend date.

11. Principally, the MPS of the shares should decline on the ex-dividend date and
after this date after the declaration of the cash dividend by the companies. But

67
from the above data we see that the MPS of UNL, DCBL and NIBL increased
by Rs.13, Rs.10 and Rs.8 respectively in fiscal year 2004/05.

12. Similar is the situation in the fiscal year 2005/06. The MPS of majority of the
cash dividend declaring companies is seen increased on ex-dividend date and
decreased after ex-dividend date.

13. During the fiscal year 2006/07, MPS of majority of the cash dividend
declaring companies is seen increased after ex-dividend date. The largest
gainer was the shares of NIBL with the increase of Rs. after the ex-dividend
date.

14. Since calculated F is greater than tabulated value, the null hypothesis, Ho is
rejected and hence the alternative hypothesis, H1 is accepted. Thus, we
conclude that there is a significant difference among mean cash dividend
payment of commercial banks and manufacturing and processing companies
whereas there is no significant difference among mean cash dividend payment
of development.

15. Since calculated value of t is of t is less than tabulated value of t, the null
hypothesis is accepted i.e. There is no significant difference between the
average MPS before and after the cash dividend payment of commercial
banks, development banks and finance companies.

68
Chapter 5
Summary and Conclusions

5.1 Summary of Findings

After the restoration of democracy in 1990 A.D., Nepal has implemented liberal
economic policy. As a result, many more companies are established in different
sectors such as industrial, tourism, transportation, trade and mostly in financial
sector who contribute to build up economy of the country. Nepal is a country trying
to develop its economy through global trend and cooperation with developed
countries.

Shareholders make investment in equity capital with the expectation of making


earning in the form of dividend or capital gains. High payout satisfies the dividend
need whereas increase in market price of stock increases capital gain. Therefore,
firm should make a proper balance between dividends and retained earning.

Dividend distribution is the very important factor to any organization for effective
goal achievement to satisfy the shareholders. Dividends are decided upon and
declared by board of directors. A firm’s profits after-tax can either be used for
dividends payment or retained in the firm to increase shareholders' fund. This may
involve comparing the cost of paying dividend with the cost of retaining earnings.

Actually, paying dividend to shareholders is an effective way to attract new


investors to invest in shares. Due to decision of earnings of a company between
dividends payout and retention of earnings of a company between dividend pay out
and retention of earnings, its effect on market value of shares is a crucial question.
So, a wise policy should be maintained between shareholders’ interest and
corporate. The funds sometimes could not be used in case of lack of investment
opportunities. In such a situation distribution of dividend to shareholders is taken as

69
the best because shareholders may have investment opportunities to invest
elsewhere.

In Nepal there is more practice of cash dividend and stock dividend. The payment of
cash dividend by the financial institutions especially by banks is seen well than
other sectors.

Thus, the study attempts to determine the impact of cash dividend on stock price.
For this whole purpose different descriptive, financial and statistical analysis was
done using various methodologies.

5.2 Conclusions

Different types of dividend are paid by the companies operating all over the world.
They may be in different forms and basis. The main reason of the dividend payment
is to provide the benefit to the shareholders of the company and to make them they
are the part of the company. In Nepal, there is a practice of providing either stock
dividend or cash dividend by the companies to their shareholders.

From the study we find out that mainly the commercial banks of the Nepal are
regular paying dividend. Being an “A” class financial institution, the majority
companies under the development banks, financial institutions and insurance
companies have not been able to pay dividend to its shareholders. Similarly, from
the CV calculation also we saw that the companies paying the cash dividend are not
paying consistently.

Under the empirical testing it has been proved that ex-day stock price tend to fall by
significantly less than the dividend. They interpret this result as consistent with a
clientele effect where investors in high tax brackets show a preference for capital
gains over dividends and vice versa. Another study examining the ex-dividend day

70
behavior of American Telephone and Telegraph stock for a time series of 43
consecutive dividends has found that the average price change from the cum-
dividend day to the ex-dividend day was $2.16, or about 4 percent less than the
$2.25 dividend.

But in Nepalese perspective the MPS of certain financial institutions is seen


increased heavily on and after ex-dividend date.

From Karl Pearson’ correlation analysis we found, there is a very low degree of
positive correlation between total listed companies and cash dividend paying
companies. We have also found that the most of the companies are paying cash
dividend and bonus share.

From the hypothesis calculation, we found there is a significant difference among


mean cash dividend payment of commercial bank and manufacturing and processing
companies i.e. i.e. cash dividend payment commercial banks and of manufacturing
and processing companies are not homogenous and there is no significant difference
among mean cash dividend payment of development banks i.e. cash dividend
payment of development banks are homogenous.

This study also concludes that there is no significant difference between the average
MPS before and after the cash dividend payment of commercial banks, development
banks and finance company.

5.3 Recommendations

On the basis of findings the following recommendation is made for the further
applications of dividend policy regarding its impact on the stock prices:

1. Shareholders should be given an option to choose between stock dividend


and cash dividend instead of declaring stock or cash dividend arbitrary. For

71
this, dividend declaration should be proposed to the AGM of shareholders
for approval.
2. The legal rules and regulation must be in favor of investors to exercise the
dividend practice and to protect the shareholders right.

3. The NEPSE and SEBON should properly handle, guide and inform the
shareholders and the related companies about the market price increase or
decrease from the impact of dividend declaration.

4. The investors should be careful in investing in the stock of development


banks, insurance companies, hotel and other sector on the basis of cash
dividend.

5. Each and every company should provide the information regarding the
activities and performance, so that investors can analyze the situation and
invest their money in the best company.

6. Having seen the history of dividend paying companies, it is seen that the net
profit after tax is the main base for distributing the dividend. Thus, it is
suggested that investor who want to purchase the equity share and
immediate return should invest on the share of high profit earning
companies.

7. The investor should also think of investing in the hydropower sector for the
investment portfolio diversification. As Nepal has a huge potentiality in
generation of the hydropower, there is a good future for the better
performance.

8. As per the study it has been seen that there is no significant difference
between the average market price before and after the cash dividend
payment, therefore it suggested to investors not to invest in the AGM period
only because of dividend.

72
REFERENCES

Adhikari, K. K. (2063). “The Comparative Study of Dividend Policy and Practices


Commercial Banks in Nepal”. Kathmandu: Shanker Dev Campus.

Bhattari, B. H. (2052). “Dividend Decision & Its Impact on Stock


Valuation”. Kathmandu: Shanker Dev Campus.

Bista, S. (2062). “Dividend Policy and Practices in Nepal: A Comparative


Study of Listed Joint Venture Commercial Banks and Manufacturing
Companies”. Master Degree Thesis, Shanker Dev Campus, Kathmandu.

Bhattarai, R., (2006). Investment- Theory and Practice. Kathmandu: Buddha


Academic Publishers & Distributors Pvt. Ltd.

Chandra, P. (1999). Financial Management. New Delhi: Tata McGraw-Hill


Publishing Co. Ltd.

Dasilasa, Apostolos (2007). “The ex-dividend day stock price anomaly: evidence
from Greece.”

Fama, E .F. & Babiak, H. (1968). “Dividend policy: an empirical analysis.”


Journal of American Statistical Association, 63, pp. 1132-1161.

Foong, S. S., Zakaria, N. B. & Tan, H. B. (2007). “Firm performance and dividend
related factors: the case of Malaysia.” Labuan Bulletin of international
business & finance. Vol. 5, pp. 97-111.

Gitmen, L. J. (2000). Principles of Managerial Finance. New Delhi: Pearson


Education, Inc.

Joshi, P. R., (2001), Research Methodology. Kathmandu: Buddha Academic


Publisher & Distributor Pvt. Ltd.

Pandey, I.M. (2002). Financial Management. New Delhi: Vikas Publishing


House Pvt. Ltd.

Uddin, Md. H. (2003). “Effect of Dividend Announcement on Shareholders’


Value: Evidence from Dhaka Stock Exchange.”
Van Horne, J. C. (2005). Financial Management and Policy. New Delhi:
Person Education, Inc.

Weston, F. J. & Copeland, T. E. (2001). Managerial Finance. New York: The


Dryden Press.

Wolff, H. K. & Pant, P. R. (2005). Social Science Research and Thesis Writing.
Kathmandu: Buddha Academic Enterprises Pvt. Ltd.
Appendix-I

Karl Pearson’s correlation coefficient (r)

Correlation Coefficient Between Total Listed Companies and Cash Dividend Paying Listed Companies

F/Y Total listed Total Cash Dividend x=X- X y=Y- Y x2 y2


xy
Companies paying listed companies(Y)
(X)
2003/04 114 32 -16.20 -3 1024 9 48.60
2004/05 125 26 -5.20 -9 676 81 46.80
2005/06 135 37 4.80 2 1369 4 9.6
2006/07 135 39 4.80 4 1521 16 19.20
2007/08 142 41 11.80 6 1681 36 70.80
N=5 ∑ X =651 ∑ Y =175 ∑ x =0 ∑ y =0 ∑ x 2 =6271 ∑ y 2 =146 ∑ xy =195

X =
∑ x = 651 = 130.20
n 5

Y=
∑y=
175
= 35
n 5

∴r =
∑ xy =
195
=
195
= 0.203
∑ ∑
x 2
y 2
6271 146 79.19 × 12.08

Finding: There is a very low degree of positive correlation between total listed companies and cash dividend
paying companies.
Appendix-II

Dividend Announcement
Name of Listed Company Dividend in (%)
Fiscal Year 2003/04 2004/05 2005/06 2006/07 2007/08
COMMERCIAL BANK
Nabil Bank Ltd. Cash Dividend 50 Cash Dividend 65 Cash Dividend 70 Cash Dividend 85 Cash Dividend 100
Bonus Share 40
Nepal Investment Bank Ltd. Cash Dividend 20 Cash Dividend 15 Cash Dividend Cash Dividend 20 Cash Dividend 5
12.58 Bonus Share 35.46 Bonus Share 25

Standard Chartered Bank (Nepal) Cash Dividend 110 Cash Dividend 110 Cash Dividend 120 Cash Dividend 130 Cash Dividend 80
Ltd. Bonus Share 10 Bonus Share 50
Himalayan Bank Ltd. Cash Dividend 1.32 - Cash Dividend 11.5 Cash Dividend 30 Cash Dividend 15
Bonus Share 20 Bonus Share 5 Bonus Share 25
Nepal SBI Bank Ltd. Cash Dividend 8 - - Cash Dividend 5 Cash Dividend 10
Bonus Share 35
Development Credit Bank Ltd. Cash Dividend 10 Cash Dividend 10 Cash Dividend 12 Cash Dividend 12 Bonus Share 12

Everest Bank Ltd. Cash Dividend 20 Cash Dividend 20 Cash Dividend 20 Cash Dividend 25 Cash Dividend 10
Bonus Share 30

DEVELOPMENT BANK
Chimeki Bikas Bank Ltd. - - Cash Dividend 10 Cash Dividend 30 Bonus Share 70
Sanima Bikas Bank Ltd. - - - - Bonus Share 20
Sahayogi Bikash Bank Ltd. - - - - Cash Dividend 3.50
Nirdhan Utthan Bank Ltd. - - Cash Dividend 4 Cash Dividend 5 Bonus Share 10
Bonus Share 10 Bonus Share 20

FINANCE COMPANY
Annapurna Finance Co. Ltd. Cash Dividend 12 Cash Dividend 2.632 Cash Dividend Cash Dividend 0.53 Cash Dividend 1.05
Bonus Share 50 3.158 Bonus Share 10 Bonus Share 20
Bonus Share 60
Bhajuratna Finance and Saving - - - - Cash Dividend 0.5
Co. Ltd. Bonus Share 10
Everest Finance Co. Ltd. - - - - -
INSURANCE COMPANY
Himalayan General Insurance Co. - - - Bonus Share 110
Ltd.
Everest Insurance Co. Ltd. Bonus Share 100 - Bonus Share 50 - Bonus Share 12.50
Nepal Life Insurance Co. Ltd. - - - Bonus Share 20 -
United Insurance Co. Ltd. - - Bonus Share 20

HOTEL
Soaltee Hotels Ltd. - - Cash Dividend 10
Taragaon Regency Hotel Ltd. - - -
Oriental Hotel Ltd. - - -
Yak and Yeti Hotel Ltd. - - -

MANUFACTURING AND PROCESSING COMPANY


Bottlers Nepal Ltd. (Balaju) Cash Dividend 5 - - - -
Bottlers Nepal Ltd. (Terai) Cash Dividend 10 Cash Dividend 5 - - -
Unilever Nepal Ltd. Cash Dividend 90 Cash Dividend 100 Cash Dividend 400 Cash Dividend 250 Cash Dividend 275
TRADING COMPANY
Salt Trading Corporation Ltd. Cash Dividend 20 Cash Dividend 20 Cash Dividend 20 Cash Dividend 20 Cash Dividend 20
Bishal Bazar Co. Ltd. Cash Dividend 75 Cash Dividend 85 Cash Dividend 90 Interim Dividend Cash Dividend 20
100 Bonus Share 80
OTHERS
National Hydro Power Co. - - - - Cash Dividend 6
Butwal Power Co. Ltd. - - - Cash Dividend 30 Cash Dividend 25
Chilime Hydro power Co. - - - Cash Dividend 35 Cash Dividend 30
Source: Annual Report of SEBON
Appendix-III

Test of Hypothesis on Cash Dividend Payments of Commercial Banks

Null Hypothesis (Ho): µ1 =µ2 =µ3 =µ4 =µ5 =µ6 −=µ7 i.e. there is no significant difference among mean cash dividend
payment of commercial banks i.e. cash dividend payment of commercial banks are homogenous.

Alternative Hypothesis (H1): µ1 ≠µ2 ≠µ3 ≠µ4 ≠µ5 ≠µ6 ≠µ7 i.e. there is a significant difference among mean cash
dividend payment of commercial banks

X1 X2 X3 X4 X5 X6 X7 X2 X 22 X 32 X 42 X 52 X 62 X 72
11
20 50 20 110 1.32 8 10 400 2500 400 12100 1.74 64 100
20 65 15 110 0 0 10 400 4225 225 12100 0 0 100
20 70 12.58 120 11.50 0 12 400 4900 158.26 14400 132.25 0 144
25 85 20 130 30 5 12 625 7225 400 16900 900 25 144
10 100 5 80 15 10 12 100 10000 25 6400 225 100 144
∑ X1 = ∑ X2 = ∑ X3 = ∑ X4 = ∑ X5 = ∑X 6 = ∑X7 =
∑ X2 =
11 ∑ X 22 = ∑ X 32 = ∑ X 42 = ∑ X 52 = ∑X 2
6 = ∑ X 72 =
95 370 72.58 550 57.82 24 56 28850 1208.26 61900 1258.99 189 632
1925

T= ∑X + ∑X + ∑X + ∑X + ∑X + ∑X + ∑X
1 2 3 4 5 6 7 =95+370+72.58+550+57.58+24+56=1224.40
2
(1224.4) 2
C.F.= T = =42833.01
N 35
T.S.S.= ∑ X121 + ∑ X 22 + ∑ X32 + ∑ X 24 + ∑ X52 + ∑ X 62 + ∑ X 72 − C.F.
=1925+28850+1208.26+61900+1258.99+189+632-42833.01
=53130.24
S.S.C.=
( ∑X ) 1
2
+
( ∑X ) 2
2
+
( ∑X ) 3
2
+
( ∑X ) 4
2
+
( ∑X ) 5
2
+
( ∑ X ) (∑ X )
6
2
7
2
− C.F.
n1 n2 n3 n4 n5 n6 n7
2
(370) 2 (72.58) 2 (550) 2 (57.82) 2 ( 24) 2 (56) 2
= (95) + + + + + + − 42833.01
5 5 5 5 5 5 5
=49307.19

S.S.W.= T.S.S.-S.S.C.= 53130.24 - 49307.19= 3823.05


Appendix-IV

Test of Hypothesis on Cash Dividend Payments of Development Banks

Null Hypothesis (Ho): µ1 =µ2 =µ3 =µ4 i.e. there is no significant difference among mean cash dividend payment of
development banks i.e. cash dividend payment of CBs are homogenous.

Alternative Hypothesis (H1): µ1 ≠µ2 ≠µ3 ≠µ4 i.e. there is a significant difference among mean cash dividend payment of
development banks.

X1 X2 X3 X4 X2 X 22 X 32 X 42
11
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 4 10 0 0 16 100 0
0 5 30 0 0 25 900 0
0 0 0 3.5 0 0 0 12.25
∑ X1 = ∑ X2 = ∑ X3 = ∑ X4 = ∑ X12 = 1
∑ X 22 = ∑ X 32 = ∑ X 42 =
0 9 40 3.5 41 1000 12.25
0

T= ∑X +∑X +∑X +∑X


1 2 3 4 =0+9+40+3.5=52.50
2
(52.50) 2
C.F.= T = =137.81
N 20
T.S.S.= ∑ X 121 + ∑ X 22 + ∑ X 32 + ∑ X 42 − C.F .
=0+41+0+1000+12.25-137.81
=915.44
S.S.C.=
( ∑X 1
)2
+
( ∑X 2)
2
+
( ∑X 3)
2
+
( ∑X 4)
2
− C.F .
n1 n2 n3 n4
2
(9) 2 (40) 2 (3.5) 2
= (0) + + + − 137.81
5 5 5 5
=200.84

S.S.W.=T.S.S.-S.S.C.= 915.44-200.84=714.60
Appendix-V

Test of Hypothesis on Cash Dividend Payments of Manufacturing and Processing Companies

Null Hypothesis (Ho): µ1=µ2 i.e. there is no significant difference among mean cash dividend payment of Mfg. and PCs i.e.
cash dividend payment of CBs are homogenous.

Alternative Hypothesis (H1): µ1≠µ2 i.e. there is a significant difference among mean cash dividend payment of Mfg. and PCs.

X1 X2 X2 X 22
11
900 15 400 400
100 5 8100 225
400 0 10000 25
250 0 160000 0
275 0 62500 0
∑ X1 = ∑ X2 = ∑ X12 = 1
∑ X 22 =
1115 20 250
316225

T= ∑X +∑X 1 2 =1115+20=1135
2
(1135) 2
C.F.= T = =128822.50
N 10

T.S.S.= ∑ X 121 + ∑ X 22 − C.F .


=3166225+250-128822.50
=187652.50
(∑ X1 ) 2 (∑ X 2 ) 2
S.S.C.= + − C.F.
n1 n2
2
(20) 2
= (1115) + − 128822.50
5 5
=119902.50

S.S.W.=T.S.S.-S.S.C.= 187652.50-119902.50=67750
Appendix-VI

Test of hypothesis on ex-dividend day test for the MPS of commercial banks

Null Hypothesis (Ho): µx =µy i.e. there is no significant difference between the average MPS
before and after the cash dividend payment of commercial banks.

Alternative Hypothesis (H1): µx > µy (Right tailed test) i.e. the average MPS decrease after the
payment cash dividend.

MPS Before Cash MPS After Cash d-x-y d2


Dividend (x) Dividend (y)
152 157 -5 25
1763 1701 62 3844
445 442 3 9
803 798 5 25
995 662 333 110889
242 243 -1 2
687 682 5 25
1860 1839 21 441
201 211 -10 100
1259 1248 11 121
1152 1160 -8 64
2312 2320 -8 64
1447 1712 -265 70225
1328 1421 -93 8649
4285 4357 -72 5184
1303 1301 2 4
809 813 -4 16
790 802 -12 144
2973 2729 244 59536
2165 1973 192 36864
4770 4285 485 235225
1993 2311 -318 101124
1665 1286 379 143641
∑ d =946 ∑ d =776220
2
n=23
∴d =
∑ d = 946 = 41.13
n 23

1 ⎡ (∑ d ) 2 ⎤
∴ sd = ⎢∑ d − ⎥
2

n −1 ⎣ n ⎦

1 ⎡ (946) 2 ⎤
= ⎢∑ 776220 − ⎥
23 − 1 ⎣⎢ 23 ⎦⎥

1
= * 737310.60
22

= 183.07

d 41.13
∴ tcal = =
s d 183.07
n 23

∴ tcal = 1.08

∴ Degree of freedom (d.f.) = n-1 = 23-1 = 22


∴ Level of significance, α =0.05

Critical Value: The tabulated value of t at α =0.05 and 23 d.f. for right tailed test is 1.714.

Decision: Since the calculated value of t is less than tabulated value of t, the null hypothesis is
accepted i.e. There is no significant difference between the average MPS before and after the
cash dividend payment of commercial banks.
Appendix-VII

Test of hypothesis on ex-dividend day test for the MPS of development banks and
finance company

Null Hypothesis (Ho): µx =µy i.e. there is no significant difference between the average MPS
before and after the cash dividend payment of development banks and finance company.

Alternative Hypothesis (H1): µx > µy (Right tailed test) i.e. the average MPS decrease after the
payment cash dividend.

MPS Before Cash MPS After Cash d-x-y d2


Dividend (x) Dividend (y)
102 124 -22 484
1052 1199 147 21609
417 350 67 4489
577 420 157 24649
883 720 163 26569
∑ d =218 ∑ d =77800
2
n=5

∴d =
∑ d = 218 = 43.60
n 5

1 ⎡ (∑ d ) 2 ⎤
∴ sd = ⎢∑ d − ⎥
2

n −1 ⎣ n ⎦

1 ⎡ (43.60) 2 ⎤
= ⎢∑ 77800 − ⎥
5 − 1 ⎢⎣ 5 ⎥⎦

1
= * 77419.81
4

= 139.12
d 43.60
∴ tcal = =
s d 139.12
n 5

∴ tcal = 0.70

∴ degree of freedom (d.f.) = n-1 = 5-1 =4


∴level of significance, α =0.05

Critical Value: The tabulated value of t at α =0.05 and 4 d.f. for right tailed test is 2.132.

Decision: Since the calculated value of t is less than tabulated value of t, the null hypothesis is
accepted and concluded that there is no significant difference between the average MPS before
and after the cash dividend payment of development banks and finance company.
Appendix-VIII

1 When a stock pays higher dividend, the lesser the profit after-tax is being retained for
firm’s growth, thus affecting the expansion activities of the firms’ operations. On the
other hand, if all of the profit after-tax is retained, this will cause dissatisfaction among
investors and in a way encouraging them to invest in other stocks.

2 This statistic is known as the ex-dividend price drop ratio, drop-off ratio, premium, price
change to dividend drop ratio ∆ P/D etc.

3 DSE classifies the listed companies into A, B and Z categories. A category companies are
good stocks as their operating performance are assessed to be good and pay regular
dividends, B-category companies are moderate companies whose operating performance
are satisfactory and pay some dividends from time to time, and Z-category companies are
those whose operating performance are not good and normally pay no dividend
APPENDIX IX

Average MPS calculation for ex-dividend test for fiscal year 2003/04
Average MPS  Average MPS 
Ex‐dividend  Before  After
S. No. Company Name date Dividend Dividend
1 EBL 21‐Dec‐03 17‐Dec‐03 18‐Dec‐03 19‐Dec‐03 22‐Dec‐03 23‐Dec‐03 24‐Dec‐03
444 445 445 444 441 442 442 445 442
2 DCBL 12‐Nov‐03 5‐Nov‐03 6‐Nov‐03 7‐Nov‐03 13‐Nov‐03 14‐Nov‐03 15‐Nov‐03
161 151 150 155 158 157 156 152 157
3 SCBNL 5‐Dec‐03 1‐Dec‐03 3‐Dec‐03 4‐Dec‐03 8‐Dec‐03 9‐Dec‐03 12‐Dec‐03
1775 1760 1756 1774 1771 1782 1550 1763 1701
4 AFC 21‐Dec‐03 12‐Dec‐03 15‐Dec‐03 19‐Dec‐03 9‐Jan‐04 23‐Jan‐04 25‐Jan‐04
410 420 420 410 350 350 350 417 350
5 NABIL 4‐Jan‐04 30‐Dec‐03 31‐Dec‐03 2‐Feb‐04 5‐Feb‐04 7‐Feb‐04 7‐Feb‐04
800 810 800 800 800 800 795 803 798
6 HBL 21‐Mar‐04 24‐Feb‐04 26‐Feb‐04 27‐Feb‐04 26‐Mar‐04 5‐Apr‐04 6‐Apr‐04
990 994 997 994 630 661 694 995 662
7 SBI 28‐Mar‐04 15‐Mar‐04 19‐Mar‐04 26‐Mar‐04 1‐Apr‐04 2‐Apr‐04 5‐Apr‐04
241 245 240 241 240 245 245 242 243

Average MPS calculation for ex-dividend test for fiscal year 2004/05
Average MPS  Average MPS 
Ex‐dividend  Before  After
S. No. Company Name date Dividend Dividend
1 EBL 31‐Oct‐04 26‐Oct‐04 27‐Oct‐04 28‐Oct‐04 1‐Nov‐04 2‐Nov‐04 3‐Nov‐04
685 690 685 685 685 680 680 687 682
2 UNL 17‐Dec‐04 18‐Nov‐04 26‐Nov‐04 16‐Dec‐04 23‐Dec‐04 27‐Dec‐04 15‐Jan‐05
1500 1510 1450 1500 1500 1500 1500 1487 1500
3 SCBNL 2‐Dec‐04 29‐Nov‐04 30‐Nov‐04 1‐Dec‐04 3‐Dec‐04 4‐Dec‐04 5‐Dec‐04
1830 1889 1860 1830 1840 1840 1838 1860 1839
4 DCBL 18‐Dec‐04 10‐Dec‐04 14‐Dec‐04 17‐Dec‐04 20‐Dec‐04 21‐Dec‐04 22‐Dec‐04
208 198 198 208 212 210 212 201 211
5 NABIL 22‐Dec‐04 17‐Dec‐04 20‐Dec‐04 21‐Dec‐04 23‐Dec‐04 24‐Dec‐04 29‐Dec‐04
1230 1230 1266 1280 1260 1270 1215 1259 1248
6 NIBL 25‐Dec‐04 22‐Dec‐04 23‐Dec‐04 24‐Dec‐04 27‐Dec‐04 28‐Dec‐04 29‐Dec‐04
1155 1147 1155 1155 1163 1162 1154 1152 1160

Average MPS calculation for ex-dividend test for fiscal year 2005/06
Average MPS  Average MPS 
Ex‐dividend  Before  After
S. No. Company Name date Dividend Dividend
1 UNL 9‐Sep‐05 6‐Sep‐05 7‐Sep‐05 8‐Sep‐05 23‐Nov‐05 24‐Nov‐05 29‐Nov‐05
2200 2140 2200 2200 1800 1885 1850 2180 1845
2 SCBNL 26‐Oct‐05 9‐Oct‐05 23‐Oct‐05 25‐Oct‐05 27‐Oct‐05 30‐Oct‐05 7‐Nov‐05
2430 2370 2400 2405 2446 2472 2200 2392 2373
3 DCBL 7‐Oct‐07 2‐Oct‐07 3‐Oct‐07 4‐Oct‐07 8‐Oct‐07 9‐Oct‐07 10‐Oct‐07
265 255 255 260 261 261 248 257 257
4 NABIL 30‐Nov‐05 24‐Nov‐05 27‐Nov‐05 29‐Nov‐05 1‐Dec‐05 6‐Dec‐05 7‐Dec‐05
1650 1660 1660 1660 1700 1631 1605 1660 1645
5 NIBL 14‐Dec‐05 11‐Dec‐05 12‐Dec‐05 13‐Dec‐05 18‐Dec‐05 19‐Dec‐05 20‐Dec‐05
785 800 790 785 788 790 770 792 783
6 HBL 16‐Dec‐05 13‐Dec‐05 14‐Dec‐05 15‐Dec‐05 18‐Dec‐05 19‐Dec‐05 20‐Dec‐05
1140 1126 1140 1140 1135 1123 1100 1135 1119
7 AFC 26‐Dec‐05 20‐Dec‐05 21‐Dec‐05 20‐Dec‐05 20‐Feb‐06 26‐Mar‐06 4‐Apr‐06
627 563 570 598 400 420 441 577 420

Average MPS calculation for ex-dividend test for fiscal year 2006/07
Average MPS  Average MPS 
Ex‐dividend  Before  After
S. No. Company Name date Dividend Dividend
1 NABIL 22‐Oct‐06 17‐Oct‐06 18‐Oct‐06 18‐Oct‐06 26‐Oct‐06 31‐Oct‐06 1‐Nov‐06
2340 2295 2300 2340 2340 2300 2320 2312 2320
2 SBI 3‐Feb‐07 29‐Jan‐07 31‐Jan‐07 1‐Feb‐07 4‐Feb‐07 5‐Feb‐07 6‐Feb‐07
800 785 785 800 800 805 800 790 802
3 HBL 15‐Dec‐06 12‐Dec‐06 13‐Dec‐06 14‐Dec‐06 17‐Dec‐06 18‐Dec‐06 19‐Dec‐06
1300 1305 1305 1300 1300 1301 1303 1303 1301
4 SCBNL 8‐Nov‐06 5‐Nov‐06 6‐Nov‐06 7‐Nov‐06 9‐Nov‐06 12‐Nov‐06 13‐Nov‐06
4400 4255 4300 4300 4440 4550 4081 4285 4357
5 EBL 31‐Oct‐06 26‐Oct‐06 29‐Oct‐06 30‐Oct‐06 1‐Nov‐06 2‐Nov‐06 6‐Nov‐06
1345 1300 1340 1345 1365 1440 1458 1328 1421
6 NIBL 26‐Oct‐06 17‐Oct‐06 18‐Oct‐06 19‐Oct‐06 29‐Oct‐06 30‐Oct‐06 31‐Oct‐06
1435 1456 1450 1435 1414 1423 2300 1447 1712
7 DCBL 25‐Dec‐06 20‐Dec‐06 21‐Dec‐06 24‐Dec‐06 26‐Dec‐06 27‐Dec‐06 28‐Dec‐06
805 810 801 815 805 816 819 809 813
8 UNL 5‐Sep‐06 24‐Aug‐06 27‐Aug‐06 30‐Aug‐06 7‐Sep‐06 18‐Sep‐06 12‐Oct‐06
2810 2810 2850 2810 2900 2750 2850 2823 2833
9 CBBL 26‐Dec‐06 2‐Apr‐06 3‐Apr‐06 27‐Nov‐08 25‐Jun‐08 29‐Jun‐08 30‐Jun‐08
105 100 100 105 120 120 132 102 124
10 CHPCL 8‐Jan‐07 3‐Jan‐07 4‐Jan‐07 7‐Jan‐07 9‐Jan‐07 10‐Jan‐07 11‐Jan‐07
817 735 745 790 810 775 800 757 795

Average MPS calculation for ex-dividend test for fiscal year 2007/08
Average MPS  Average MPS 
Ex‐dividend  Before  After
S. No. Company Name date Dividend Dividend
1 EBL 7‐Oct‐07 2‐Oct‐07 3‐Oct‐07 4‐Oct‐07 8‐Oct‐07 9‐Oct‐07 10‐Oct‐07
2955 2970 2950 3000 2587 2849 2750 2973 2729
2 HBL 31‐Dec‐07 25‐Dec‐07 26‐Dec‐07 27‐Dec‐07 9‐Jan‐08 10‐Jan‐08 12‐Jan‐08
2054 2220 2180 2095 2054 1985 1880 2165 1973
3 NABIL 7‐Oct‐07 2‐Oct‐07 3‐Oct‐07 4‐Oct‐07 8‐Oct‐07 9‐Oct‐07 10‐Oct‐07
4631 4800 4800 4710 4450 4255 4150 4770 4285
4 NIBL 8‐Nov‐07 5‐Nov‐07 6‐Nov‐07 7‐Nov‐07 12‐Nov‐07 13‐Nov‐07 14‐Nov‐07
2120 1940 2000 2040 2162 2280 2490 1993 2311
5 SBI 22‐Feb‐08 16‐Feb‐08 17‐Feb‐08 19‐Feb‐08 25‐Feb‐08 27‐Feb‐08 28‐Feb‐08
1200 1850 1230 1825 1275 1301 1282 1635 1286
6 SBBL 11‐Jan‐08 8‐Jan‐08 9‐Jan‐08 10‐Jan‐08 12‐Jan‐08 13‐Jan‐08 14‐Jan‐08
1125 1020 1018 1119 1332 1175 1090 1052 1199
7 AFC 13‐Jan‐08 6‐Jan‐08 11‐Jan‐08 12‐Jan‐08 21‐Jan‐08 22‐Jan‐08 31‐Jan‐08
640 610 650 1390 684 710 767 883 720
8 CHCPL 10‐Feb‐08 3‐Feb‐08 4‐Feb‐08 5‐Feb‐08 12‐Feb‐08 14‐Feb‐08 16‐Feb‐08
1151 1078 1036 1076 1145 1335 1167 1063 1216
9 NLIC 24‐Jun‐08 4‐Jun‐08 5‐Jun‐08 9‐Jun‐08 25‐Jun‐08 29‐Jun‐08 30‐Jun‐08
1560 1601 1633 1698 1825 1620 1650 1644 1698