REPORT ON IMPACT OF DIVIDEND ON

SHARE PRICES
(Analysis of Nabil Bank Limited and Nepal Investment Bank
Limited)

Submitted To:
Mr. Ritesh Thakur
Lecturer
(Data Analysis and Statistics)

Submitted By:
Group 1:
Anugya Rijal
Bina Lama
Cynthia Maharjan
Resica Acharya
Sambridhi Rayamajhi
Shreya Chitrakar

December 31, 2018

 ACKNOWLEDGEMENT

This research project is completed successfully through the help and support of many individual
and organizations. We would like to take this opportunity to provide our sincere gratitude and
thanks to them. First of all, we would like to thank Kathmandu College of Management, for
providing all the students with the opportunity to enhance their knowledge and competence by
means of scientific tools for analyzing and solving business problems.

Similarly, we would like to express our sincere gratitude and deep regards to Mr. Ritesh Thakur
for his constant guidance, feedback and encouragement throughout our research project. We
would also like to give our sincere appreciation to the authors who made their reports and
findings available in order to obtain various information essential to complete our research
project.

Finally, we would also like to express our sincere gratitude to all our friends and family for their
support, corporation and encouragement without which the completion the research would be
incomplete.

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CONTENTS
ACKNOWLEDGEMENT ....................................................................................................... 1

EXECUTIVE SUMMARY ..................................................................................................... 4

LIST OF TABLES: ................................................................................................................. 5

CHAPTER 1: INTRODUCTION ............................................................................................ 6

1.1 Background ........................................................................................................................... 6

1.2. Company Profile .................................................................................................................. 6

1.3. Problem Statement ............................................................................................................... 8

1.4. Objectives ............................................................................................................................. 8

1.5. Organization of the Project Report....................................................................................... 9

CHAPTER 2: LITERATURE REVIEW ............................................................................... 10

2.1. Concept of Dividend ....................................................................................................... 10

2.2. Dividend and Psychology of Investors .............................................................................. 11

2.3. Other Research Studies: ..................................................................................................... 11

2.4. Types of Dividend .............................................................................................................. 12

2.5. Dividend payment procedure ............................................................................................. 13

2.6. Effect of Dividend Announcement .................................................................................... 14

2.7. Dividends and Retained Earnings ...................................................................................... 14

CHAPTER 3: METHOD ....................................................................................................... 15

3.1. Research Overview ............................................................................................................ 15

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3.2. Conceptual Framework ...................................................................................................... 15

3.3. Data Source ........................................................................................................................ 16

3.4. Data Analysis Tools ........................................................................................................... 16

3.5. Limitations of the study...................................................................................................... 17

CHAPTER 4: ANALYSIS AND FINDINGS ....................................................................... 18

4.1. Descriptive Analysis .......................................................................................................... 18

4.2. Regression and ANOVA Analysis ..................................................................................... 18

4.3. Effect of Dividend Announcement .................................................................................... 21

4.4. Findings: ............................................................................................................................. 23

CHAPTER 5 : SUGGESTIONS........................................................................................... 24

REFERENCES ...................................................................................................................... 25

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 EXECUTIVE SUMMARY

The ultimate objectives of the management of a firm is to maximize the shareholders wealth as
well as the stakeholder’s wealth. To maximize the shareholders wealth, dividend payments are
perceived to be the constitutional rights of the shareholders. On the contrary, dividend payments
drain away retained profits and reserves in a way which affects the level of equity retained. The
dilemma that whether dividends have any impact upon the share price and the value of the firm
has been among the managers. Whether to distribute the profit or maximize the wealth by
investing the profit into some other projects has been one of the confusions among the managers.
Dividend policy can affect the value of a firm and in turn, the wealth of shareholders. Dividend
policy is therefore, considered to be one of the most important financial decisions that corporate
managers encounter as it has potential implications for share prices and hence returns to
investors. Dividend payment is such an important factor in the performance of a firm that its
effect on the price of the firm’s shares has generated much controversy. The controversy in the
main, centers on the relevance or irrelevance of dividend policy as regards with share valuation.

Since a perfect market doesn’t exist, dividend does have impact upon the share prices and further
Nepal being an imperfect capital market, dividend affects the share price of the companies. So,
we decided to base our research on two popular commercial banks of Nepal who provide
dividends frequently i.e. Nabil and Nepal Investment Bank Limited.

Identification of proper statistical tools and application has made this research report up to the
point of analytical and descriptive statistical interpretation. The share prices of the banks are
taken into consideration for the basis for descriptive analysis tools like mean, median, mode,
standard deviation and the earning per share, dividend per share, are used as a basis for use of
inferential tools like analysis of variance (ANOVA) and regression. The overall research survey
was managed by the effort of researchers and are tried to be made as reliable as possible. The
secondary data collected were further processed using Statistical Package for Social Science
(SPSS) which supported the researcher with data coding, recording, filtering and analyses and
results are obtained through this application in tabular form.

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 LIST OF TABLES:

Table 1: Nabil Bank Limited (Mean, Median, Mode, Standard Deviation)

Table 2: Nepal Investment Bank Limited (Mean, Median, Mode, Standard Deviation)

Table 3: Regression Analysis of DPS and MPPS of Nabil Bank

Table 4: ANOVA of Nabil Bank

Table 5: Regression Analysis of NIBL

Table 6: ANOVA of NIBL

Table 7: Effects of dividend announcement of NABIL

Table 8: Effects of dividend announcement of NIBL

 

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 CHAPTER 1: INTRODUCTION

1.1 Background
Investment is defined simply as the sacrifice of current consumption for future consumption with
an objective to increase future wealth. With the sacrifice of the current consumption, the investor
expects desired level of wealth at the end of his investment horizon. Time and risk are the two
conflicting attributes involved in any investment decision. An investor must have a clear vision
of the magnitude of risk that they are willing to take and the amount of time they are willing to
wait before making an investment.

A dividend is the distribution of reward from a portion of company's earnings to the company's
shareholders. Share price refers to the price of a share at which it is being traded at the particular
moment. There are many reasons to believe that shares prices are indeed affected by the dividend
distributed by a company. The primary reason is the general investor psychology wherein a stock
becomes less attractive to an investor if the stockholder's haven't received any or very little
dividend over the years and vice versa.

The reason why we chose the two banks: Nabil and Nepal Investment Bank Limited is thei
significant difference in their distributed dividend and their share prices. With this report, we aim
to find out if the share prices were, at least to some extent influenced by the dividends announced
by the company.

1.2. Company Profile

Nabil Bank Limited

Nabil Bank Limited is Nepal's first private sector bank, commencing its
business since July 1984. Nabil was established with the objective of
providing international standard modern banking services to the nation
and it has been continuously working to fulfill its objective by
delivering a full range of commercial banking services through its Figure 1 Nabil Bank Logo

74 branches.

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Nabil Bank has a total of 80,386,025 shares listed with a paid up value of Rs 100 per share. The
total paid up value amounts to RS 8,038,602,500. The market capitalization amounted to Rs
69,533,911,625. The 180 days average was of Rs. 904.40504. The last traded and the closing
market price was Rs 865. Furthermore, Nabil Bank has announced a total of 34% dividend with
22% cash dividend and 12% bonus shares. (Data as on 29th December, 2018)

Nepal Investment Bank Limited

Nepal Investment Bank Limited (NIBL), previously Nepal

Indosuez Bank Ltd., was established in 1986 as a joint venture
between Nepalese and French partners. 50% ownership was help
by the French partners Credit Agricole Indosuez, a subsidiary of
one of the largest banking group in the world, which was later
acquired by a group of Nepalese companies in 2002 thus changing
its name to Nepal Investment Bank Ltd. NIBL aims to be the
leading Nepali bank, delivering world class service my
juxtaposing latest technology and pioneering management in order Figure 2NIBL Logo

to achieve and create value to all the stakeholders.

Nepal Investment Bank Limited has a total of shares of 106,264,357 listed with a paid-up value
of Rs 100 per share. The total paid up value amounts to Rs 10,626,435,700. The market
capitalization amounted to Rs 60,676,947,847. The 180 days average was Rs 623.981707. The

7
last traded and the closing market price was Rs 571. Likewise, Nepal Investment Bank has
announced a total of 40% dividend with 22% cash dividend and 18% bonus shares. (Data as on
27th December, 2018)

Figure 3NIBL EPS

1.3. Problem Statement

The share market of Nepal is its growing phase and a high number of people are still not fully
aware about how to cleverly invest one's money into the appropriate financial assets. In cases of
developed share markets like NASDAQ, SENSEX, etc. investors look at various factors before
investing. However, we believe that in and not limited to the context of NEPSE, investors seem
highly affected by the dividends distributed by the company, which as a matter of fact isn't and
shouldn't be the only parameter to judge a company's success. The trends also seem to suggest
that he share prices increase due to higher demand of shares after the announcement of a large
dividend and vice versa.

1.4. Objectives
 To describe the central tendency of the data using tools like mean, median, and standard
deviation
 To find statistically significant differences between the means of share prices of Nabil
Bank Ltd. and Nepal Investment Bank Ltd.

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  To infer the relationship between the independent variable (Dividend) and the dependent
variable (Share Prices)

1.5. Organization of the Project Report

Chapter 1

This chapter introduces the research project as well as the company's that the research was done
in. It also includes the problem statement and the objectives of the research.

Chapter 2

This chapter comprises of the literature review related to the study. It also features the different
theories related to dividend and the share prices. It also consists of the findings of earlier studies
and research related to dividend and share prices conducted within and outside Nepal.

Chapter 3

This chapter describes the research design, sources if data uses for analysis, and the tools and
types of analysis used for the research. It also includes the limitations of the research.

Chapter 4

This chapter is the analysis and findings of the data in which the data is described and the
relationship between dividend and share prices is analyzed using various tools.

Chapter 5

The last chapter of the report features the explanation of the findings, recommendations and
suggestions in context of dividend announcement and share prices.

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 CHAPTER 2: LITERATURE REVIEW

2.1. Concept of Dividend

Dividends represent a distribution of corporate earnings to company shareholders and usually
take place in one of two forms that is cash or stock. Dividend is a token reward paid to the
shareholders for their investment in company’s equity, and it usually originates from the
company's net profits. While the major portion of the profits is kept within the company
as retained earnings, which represent the money to be used for company’s ongoing and future
business activities, the remainder can be allocated to the shareholders as a dividend. However, at
times companies may still make dividend payments even when they don’t make suitable profits.
They may do so to maintain their established track record of making regular dividend payments.
Dividends can be paid at a scheduled frequency, like monthly, quarterly or annually.

Two of the main concepts of dividend:

1. The Irrelevance Concept:

This concept suggests that dividend decisions has no effect upon either the share prices or
the wealth of the shareholders. The concept rather give emphasis to the retained earnings
which can be used for future profitable investments that will instead help in maximising
the wealth of shareholders.

2. The Relevance Concept:

This concept suggests that dividend decision has impact on the firm’s value and thus it
has impact upon the share prices of the company.

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2.2. Dividend and Psychology of Investors
The stock market is the collective result of the decisions of millions of investors. For investors,
dividends serve as a popular source of investment income. Dividends also serve as an
announcement of the company's success. When companies display consistent dividend histories,
they become more attractive to investors. As more investors buy in to take advantage of this
benefit of stock ownership, the stock price naturally increases, thereby reinforcing the belief that
the stock is strong. If an investor thinks the future is bright for a given company, she wants to
invest as soon as possible to reap the maximum profit. If enough investors feel the same way, the
increase in investment drives the stock price up. Conversely, when a company that traditionally
pays dividends issues a lower-than-normal dividend, or no dividend at all, it may be interpreted
as a sign that the company has fallen on hard times. The truth could be that the company's profits
are being used for other purposes – such as funding expansion – but the market's perception of
the situation is always more powerful than the truth.

Dividend affect the price of the stock in many ways, whereas along with the declaration of
dividend also have specific changes in the market price. It is known that the stock price of a
company mainly depends upon the value of the company, however psychology of market plays
an important role in determining the stock prices as aforementioned.

2.3. Other Research Studies:

There are many researches conducted in other countries regarding the relation between stock
price and the dividend, among such research conducted, the research by Uddin,2008 in Saudi
Arabian market and by Botchwey,2014 in Ghana market have concluded with the findings that
there is a positive correlation between the dividend and stock prices. Similarly, Sohrab Hussain
Khan has included dividend as one of the determinants of share price movement in Bangladesh
and has shown findings which suggests that dividend has more impact upon share price
movements rather than retained earnings.

Some of the research conducted in the context of Nepalese market (Joshi), (Dhungel) has shown
some relation between dividend and the stock price, most of them being a positive relation.

11
2.4. Types of Dividend
A dividend is generally considered to be a cash payment issued to the holders of company stock.
However, there are several types of dividends, some of which do not involve the payment of cash
to shareholders. Some of these dividend types are:

i. Cash Dividend: It is one of the popular forms of dividend and is believed to be the most
preferred type of dividend for shareholders. On the date of declaration, the board of
directors resolves to pay a certain dividend amount in cash to those investors holding the
company's stock on a specific date.

ii. Stock Dividend: A stock dividend is the issuance by a company of its common stock to
its common shareholders, instead of cash dividend. These types of dividends are given
second most priority by the companies while distributing dividends. It usually doesn’t
affect the company’s earning position.

iii. Script Dividend: A company may not have sufficient funds to issue dividends in the
near future, so instead it issues a scrip dividend, which is essentially a promissory note
(which may or may not include interest) to pay shareholders at a later date. This dividend
creates a note payable.

iv. Property Dividend: A company may issue a non-monetary dividend to investors, rather
than making a cash or stock payment in the form of assets.

v. Liquidating Dividend: When the board of directors wishes to return the capital
originally contributed by shareholders as a dividend, it is called a liquidating dividend,
and may be a precursor to shutting down the business.

In the context of Nepal, cash dividend and stock dividend are the major types of dividend the
companies use for distribution. Nabil Bank Limited (NABIL) has proposed 34% dividend for its

12
shareholders. As per the notice published in NEPSE, the bank has proposed 12% bonus shares
and 22% cash dividend for the FY 2074/75. For the previous FY 2073/74, the bank had
distributed 30% bonus shares and 18% cash dividend. Similarly, Nepal Investment Bank Limited
has proposed 25% Cash Dividend to its shareholders for fiscal year 2073/74.

2.5. Dividend payment procedure

Dividend payouts follow a set procedure as follows:

1. Declaration Date

It is the first step in the dividend payment procedure. Declaration date is the announcement that
the company's board of directors approved the payment of the dividend and the amount of
dividend to be paid.

2. Ex-Dividend Date

The ex-dividend date is the date on which investors are cut off from receiving a dividend. If for
example, an investor purchases a stock on the ex-dividend date, that investor will not receive the
dividend. This date is two business days before the holder-of-record date.
The ex-dividend date is important as, from this date and forward, new stockholders will not
receive the dividend eg if ex-dividend date is 4 days then only the shareholders who have bought
the shares before 4 days has the right to dividend for that year. As a result, the stock price of the
company will be reflective of this. For example, on and after the ex-dividend date, a stock most
likely trades at lower price, as the stock price is adjusted for the dividend that the new holder will
not receive.

3.Holder-of-Record Date
The holder-of-record (owner-of-record) date is the date when the company analyzes its record to
identify their existing shareholders and hence, the stock books is closed and the stockholders
who are to receive the dividend are recognized.

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4.Payment Date

Last is the payment date, the date on which the actual dividend is paid out to the stockholders of
record. Here, further consideration must be taken in analyzing the impact of these dividend
announcement on the share prices of the company.

2.6. Effect of Dividend Announcement

The dividend announcement has been one of the major actions that the firms usually take so that
the companies are able to attract the investors to invest in the shares. It is found that the investors
usually react positively to the announcement of the dividends with the hope that the firms have
substantial earnings which are being distributed at the present.
According to the dividend signaling theory, a company decides to announce its dividend payout
policy to signal the market that the firm is now processing future prospects, which will result in
changing its stock prices. The study employs event study methodology in examining the effect of
dividend announcement on the stock price surrounding forty days of announcement. In addition,
the reaction of stock prices to the dividend announcement is also determined. Research result
indicates that the stock prices move upward significantly after dividend announcement.

2.7. Dividends and Retained Earnings

When the board of directors’ issues, or "declares" dividends, the accounting effect is a reduction
in the retained earnings balance and an increase in the liability account "dividends payable."
When the dividends are paid, the liability is removed from the company's books and the cash
balance is reduced.
Since the dividend are distributed from the net incomes, cash dividends reduce the net income.
The dividend assures investors that they will receive return in current periods whereas
reinvestment of retained earnings ensure that there are chances the shareholders will receive
more return in future.
However, whenever there is an increase in dividend distribution there will be decrease in the
earnings per share. Thus, dividend per share and earnings per share have inverse relationship.

14
 CHAPTER 3: METHOD

3.1. Research Overview

The research is analytical in nature. It used the secondary sources of data which was collected
from listed companies in Nepal Stock Exchange (NEPSE) and Share Sansar. The sample
includes commercial banking firms of Nepal. This report summarizes the statistical modeling
and analysis results associated with the impact of dividend upon share prices of Nabil Bank
Limited and Nepal Investment Bank Limited. The data is taken from past 2 years from each
bank and also the data regarding DPS, EPS and the respective share prices is collected. The
major source of information is from the annual reports of the banks, the website of NEPSE and
sharesansar.

Simple statistical techniques were used to tabulate the result of this study. After the collection of
the data, the MS Excel and SPSS are used for the data analysis which will further be analyzed
through regression model and in ANOVA. The regression model helped to show the degree of
impact dividend has on share prices and the ANOVA helped to show whether any relation exists
between dividends and the share prices.

3.2. Conceptual Framework

15
Fig.1 Presents the multiple linear relationships between share prices, dividends and retained
earnings. It shows the impact of dividends on stock prices of Nepalese stock market, it is found
that DPS is motivating factor in the Nepalese financial sector which is strong enough to increase
share prices of the banking firms. The impact of dividend, however, is much more pronounced
than that of the retained earnings. The relation of dividends and retained earnings on share price
is positive in all cases.

3.3. Data Source

We’ve collected on secondary data for the purpose of making this report on the comparative
analysis of impacts of dividend on share prices of Nepal Investment Bank Limited and Nabil
Bank Limited. The secondary data is collected from websites, annual reports of both banks,
journals and articles published on the web. However, in some cases just paraphrasing is done to
the information received from these websites. The data regarding the average prices of total
amounts of shares of both Nabil Bank Limited and Nepal Investment Bank Limited are extracted
from the NEPSE website. Also, we’ve retrieved data from sharesansar’s website as well. The
data regarding Earning per share (EPS), Dividend Per Share (DPS) are collected from the annual
report of NBL and NIBL from fiscal years 2013/14 to 2016/17.

The information regarding the declaration of dividends and the dates of declaration are taken
from the NEPSE website as well as the websites of both Nabil and Nepal Investment Bank Ltd.
All the data regarding the share prices distribution are listed down from the NEPSE website.
Other than these official sources, we’ve taken data from various articles and journals regarding
the impacts of dividend on share prices in context of Nepal that have been cited in the reference
section of this report.

3.4. Data Analysis Tools

The major data analysis tools being used to find out the impacts of dividend on share prices are
ANOVA and Regression. To describe the central tendency of the data, various tools like mean
median, mode are also being used for better understanding of the scenario of share market and
the price fluctuations in the market.

Analysis of variance (ANOVA) is a collection of statistical models and their associated

estimation procedures such as the "variation" among and between groups. ANOVA is being used

16
to statistically signify the difference between the means of share prices of both NIBL and Nabil
Bank Limited. ANOVA is used is this scenario because the share prices are unrelated or are
independent to each other.

The regression is used to identify the strength of the effect that independent variable(s) have on a
dependent variable. it can also be used to forecast effects or impact of changes. That is, the
regression analysis helps us to understand how much the dependent variable changes with a
change in one or more independent variables. In our report, we will be working on regression
analysis to infer the relationship between the independent (dividend per share, earning per share,
market price per share) and dependent variable (share prices).

3.5. Limitations of the study

The analysis of the study is tried to made as relevant, accurate and reliable as possible. However,
we faced some hurdles while collections of data or analysis was being done. There are some
limitations that need to be taken into consideration as they may have affected the findings of the
research being conducted. The limitations that exist in the study are:

 More appropriate tools like the t-test could not be used while conducting analysis due to
lack of knowledge.
 The research is conducted on the basis of the last 10 years only as required data was
available only for these ten years; due to lack of information.

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 CHAPTER 4: ANALYSIS AND FINDINGS
4.1. Descriptive Analysis
1. Nabil Bank Limited: (TABLE 1)

2007/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/
DATE
08 09 10 11 12 13 14 15 16 17
AVERA 4325.1 3955.3 2241.8 1085.7 1281.9 1728. 2260.6 1823.9 2416.7 1466.6
GE 08 82 9 76 26 43 74 06 1 6
MEDIA
4325 4000 2252 1100 1241 1735 2282 1880 2427 1460
N

MODE 5200 4250 2300 1085 1205 1750 2320 1900 2400 1460

986.21 321.33 134.72 137.73 90.984 26.82 88.428 123.75 53.331 18.419
SD
37 1 28 67 27 29 41 12 74 42

2. Nepal Investment Bank Limited: (TABLE 2)

2007/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014/ 2015/ 2016/
DATE
08 09 10 11 12 13 14 15 16 17
AVERAG
2500 1180 780 541 500 720 915 705 1070 742
E

MEDIAN 2329 1214 734 501 496 723.8 913 694.21 1084 743

MODE 2445 1195 746 510 495 723 915 707 1081 742

SD 234.1 65.91 60.4 51.7 35.34 9.786 27.5 45.024 24.37 3.42

The above table shows the descriptive analysis tools of the share prices of Nepal Investment
Bank Limited for the past ten years. According to the table, the largest average of total share
prices was in 2007/08 i.e. 2500. The mode represents the most repeated share price in that year
and the standard deviation indicates the deviation of the results from the linear equation or the
mean of for the year.

4.2. Regression and ANOVA Analysis

1. Nabil Bank Limited

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This section includes the regression analysis between two variables, i.e. MPPS (Market price per
share) and DPS (Dividend per share) of Nabil Bank. Thus, simple linear regression is used as a
tool of analysis.

Regression Analysis of DPS and MPPS (Table 3 and 4)

Regression Statistics
Multiple R 0.829879
R Square 0.688699
Adjusted R
Square 0.649787
Standard Error 642.2841
Observations 10

ANOVA
Significance
Df SS MS F F
Regression 1 7301192 7301192 17.69862 0.002968
Residual 8 3300231 412528.9
Total 9 10601423

Standard Lower Upper

Coefficients Error t Stat P-value 95% 95%
Intercept -269.784 634.4014 -0.42526 0.681857 -1732.72 1193.149
DPS 41.80329 9.936667 4.206973 0.002968 18.88929 64.71728

The above table depicts the regression analysis output of DPS and MPPS of Nabil Bank which
was derived with the help of Microsoft Excel 2010. A regression equation can be formed from
the table:

MPPS = -269.784 + 41.80 * DPS

In the equation above, MPPS is a dependent variable and DPS is an independent variable. From
the equation, it can be interpreted that an increase in a rupee of DPS results in the increase of
MPPS by Rs. 41.80. This equation has helped to find what effect changes in DPS have in market
prices of Nabil Bank.

19
Similarly, it can be concluded that the relationship between these two variables is quite strong as
its R square is 68.86%. This means that 68.86% of variation of the variation in MPPS is
explained by the variation in DPPS.

2. Nepal Investment Bank Limited

This section includes the regression analysis between two variables, i.e. MPPS (Market price per
share) and DPS (Dividend per share) of NIBL Bank. Thus, simple linear regression is used as a
tool of analysis.

Regression Analysis of DPS and MPPS (Table 5 and 6)

Regression Statistics
Multiple R 0.4256509
R Square 0.1811787
Adjusted R Square 0.0992965
Standard Error 537.72591
Observations 12

ANOVA
Significance
df SS MS F F
Regression 1 639793.4743 639793 2.21268 0.16772
Residual 10 2891491.526 289149
Total 11 3531285

Standard Lower Upper

Coefficients Error t Stat P-value 95% 95%
Intercept 1470.1948 310.316112 4.73773 0.00079 778.767 2161.62
Dividend per
share -23.61837 15.87782399 -1.4875 0.16772 -58.996 11.7596

The above table depicts the regression analysis output of DPS and MPPS of NIBL Bank which
was derived with the help of Microsoft Excel 2010. A regression equation can be formed from
the table:

MPPS = 1470.19 – 23.61 * DPS

20
In the equation above, MPPS is a dependent variable and DPS is an independent variable. From
the equation, it can be interpreted that an increase in a rupee of DPS results in the decrease of
MPPS by Rs. 23.61. This equation has helped to find what effect changes in DPS have in market
prices of Nabil Bank.

Similarly, it can be concluded that the relationship between these two variables is weak as its R
square is 18.11%. This means that 18.11% of variation of the variation in MPPS is explained by
the variation in DPPS.

4.3. Effect of Dividend Announcement

This section includes the effect that dividend announcement has upon the share prices of the
company. The data has been represented in a tabular form which includes share price before the
date of announcement, the date of announcement, share price after the date of announcement and
the price change that has occurred due to the announcement of dividend distribution.

1. Nabil Bank (Table 7)

MPPS before Date of MPPS after Price change

dividend announcement dividend
announcement announcement

1466.66 2016/17 1736.61 269.95

2416.71 2015/16 1611.21 -805.5
1823.906 2014/15 1270.12 -553.786
2260.674 2013/14 2447.21 186.536
1728.43 2012/13 2447.21 718.78
1281.926 2011/12 2238.21 956.28
1085.776 2010/11 984.21 -101.566
2241.89 2009/10 2656.21 414.32
3955.382 2008/09 3283.21 -672.17
4325.108 2007/08 3910.21 -414.898

From the above table, it can be identified that out of 10 years, for 5 years there was a positive
price change in the share prices per year after the dividend announcement. And for remaining 5

21
years there was a negative price change i.e. decreases in share prices per share after there was
announcement regarding dividend distribution. The highest degree of positive change in price
was found in year 2011/12 followed by year 2012/13. Similarly, the highest degree of negative
change in price was found in year 2008/09 followed by year 2014/15. Observing the trends of
dividend announcement, an analysis can be made that the MPPS of Nabil has usually responded
positively to the dividend distribution announcement made by the company.

2. NIBL (Table 8)

MPPS before Date of MPPS after Price change

dividend announcement dividend
announcement announcement

1040 2016/17 1443.27 403.27

704 2015/16 716.32 12.32
960 2014/15 879.94 -80.06
784 2013/14 879.94 95.94
511 2012/13 1352.14 841.14
515 2011/12 879.94 364.94
705 2010/11 879.94 174.94
1388 2009/10 997.99 -390.01
2450 2008/09 1293.11 -1156.89
1729 2007/08 1352.14 -376.86

From the above table, it can be identified that out of 10 years, for 6 years there was a positive
price change in the share prices per year after the dividend announcement. And for remaining 4
years, there was a negative price change i.e. decreases in share prices per share after there was
announcement regarding dividend distribution. The highest degree of positive change in price
was found in year 2012/13 followed by year 2016/17. Similarly, the highest degree of negative
change in price was found in year 2008/09 followed by year 2009/10. Observing the trends of
dividend announcement, an analysis can be made that the MPPS of NIBL Bank has usually
responded positively to the dividend distribution announcement made by the company.

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4.4. Findings:

1. There exists a negative relationship between DPS and MPPS in case of NIBL where
as there is a positive relationship between DPS and MPPS in terms of Nabil Bank.

2. The simple regression analysis showed the impact of DPS upon the MPPS of NIBL
and Nabil Bank. An increase in a rupee of DPS resulted to decrease in share price of
NIBL by Rs. 23.62 where as an increase in a rupee of DPS resulted to increase in
share price of Nabil Bank by Rs. 29.42.

3. Similarly, for NIBL Bank, 18.11% of the variation that occurred in MPPS was due to
the variation occurred in DPS which shows that there was less impact of dividend
upon the share prices in case of NIBL. Also, for Nabil Bank, 68.86% of the variation
that occurred in MPPS was due to the variation in the DPS which showed that there
was a quite positive and strong impact of dividend in the share price.

4. The study also showed that the dividend announcement mostly had a positive effect
in the share price of the NIBL i.e. the dividend announcement resulted to increase in
the share prices of NIBL more than in case of Nabil Bank.

 

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 CHAPTER 5 : SUGGESTIONS

Since a perfect market doesn’t exist, dividend does have impact upon the share prices and further
Nepal being an imperfect capital market, dividend affects the share price of the companies.

Thus, in order to make this analysis, we chose Nabil Bank limited and Nepal Investment Bank
Limited.

Based on the results of the analysis, some suggestions for NIBL and Nabil Bank Limited are as
follows:

 Since DPS had both positive and more impact on share prices of Nabil bank should keep on
distributing its net profit as dividends where as NIBL should stop distributing more net profits as
dividends.

 The announcement of dividends has a positive impact on the price of the share, but they
should also consider that the impact of the announcement of dividends on the share price
has decreased. NIBL should therefore bear in mind that its share prices have less impact
on the distribution of dividends and on the announcement of dividends.

 The total dividend had a negative impact on share prices, but the announcement of the
dividend had a positive impact on the price of share. Since both results contradict each
other, it is recommended that NIBL carry out extensive research to determine the cause
of this contradiction.

Overall, there are many other factors that affect share prices, but this study focuses solely on the
impact of dividends on the company's share prices.

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 REFERENCES

 http://www.nepalstock.com/uploads/files/reports/80f041bba22eeba58356736c06875924.
pdf
 Shrestha, A. (2016), Dividend policy and its impact on share price: A study on Nepalese
commercial banks
 Chhetri, G.R. (2008), Dividend and stock prices: A case of Nepal, an unpublished
M.Phil. thesis submitted to Tribhuvan University.
 Shrestha. Chandani (2017), Impacts of Dividend in Share Price, an analysis on Nepal
Investment Bank Limited, an unpublished report submitted to Kathmandu University
 https://www.nabilbank.com/component/investor/?view=doclist&catid=157&doctype=An
nual%20Reports
 https://nibl.com.np/index.php?option=com_content&view=article&id=16&Itemid=24
 http://www.nepalstock.com/
 https://www.sharesansar.com/

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