Impact of firm specific variables on dividend payout of Nepalese banks

Mani Manandhar
Abstract
This study examines the impact of firm specific variables on dividend payout of Nepalese
banks. For the purpose of this study, the secondary data has been used. The total dividend
per share and cash dividend per share are selected as dependent variables. Return on assets,
return on equity, earning per share, price earnings ratio, cash flow, total debt to total equity,
and size of total assets are independent variables. The data are collected from the Banking
and Financial Statistics, Bank Supervision Report published by Nepal Rastra bank and
annual reports of selected banks. The regression models are applied to test the significance
and importance of dividend payout of commercial and development banks.

Using data of 13 commercial banks and 8 national level development bank for the period of
2007/08-2013/14, the result shows that profitability and size are the major determinants of
dividend payout of commercial and development banks in Nepal. Earnings per share, return
on assets, return on equity, size and liquidity have significant positive impact on dividend per
share. Similarly, profitability, size, and liquidity are the most prominent factors affecting
cash dividend per share of Nepalese commercial and development banks. Profitability, size
and liquidity are found to have positive significant effect on cash dividend per share while
leverage has negative effect on cash dividend per share.

Key Words: Total dividend per share, cash dividend per share, profitability, price earnings
ratio, leverage, size, liquidity.

1. Introduction
Dividend policy is the set of guidelines a company uses to decide how much of its earnings it
will pay out to its shareholders. It is an important organizational decision to enable a firm to
achieve its objectives and perform efficiently. In the field of finance, dividend policy is rated
as one of the top ten ‘perplexing issues’. Any policy that leads to a maximization of a firm’s
stock price, which in turn leads to the maximization of shareholder wealth, is referred to as an
optimal dividend policy (Gul et al., 2012). However, the relationship between dividend policy
and shareholder wealth remains unclear (Higgins, 1972; Crutchley & Hansen, 1989). Many
dividend theories have been propounded to give the explanation on how the dividend
decisions are being undertaken and whether it has an influence on the value of the firm.

In the real world disregarding the assumptions made by Modigliani and Miller (1961),
various academics have argued that dividends have significant impact on the company’s
value. Lintner (1956) concludes that dividends are determined by a target payout level that
depends on the company’s long term earnings. Lintner’s study was supported by Gordon
(1959) who stated that the shareholders prefer dividends rather than capital gains. If this is
true, the company’s dividend payouts are of major importance both to shareholders and
managers since it contributes to a higher value and shareholders would be willing to pay a
higher price for stocks that pay dividends.

Uwuigbe et al.(2012) state that dividend policy remains one of the most important financial
policies not only from the view point of the company, but also from the view point of the
shareholders, consumers, employees, and regulatory bodies. There are studies conducted on
dividend policy to find the factors affecting the dividend payout. Notably, firm size, leverage
profitability, liquidity, and risk are among those that are found to have significant explanatory

1
power in dividend payout (Holder et al., 1998; Agrawal & Jayaraman, 1994; Glen et al.,
1995; Fama & French, 1998)

There is a conceptual conflict about the dividend payout policy paying in cash versus internal
financing (Garrett & Priestley, 2000). These alternatives have their own impact while
deciding dividend policy. If the investor would not receive cash dividend, they would think
their investment was worthless. Similarly, management expects to retain all the earning for
internal financing, an essential strategy for corporate growth. Generally, companies expect to
have lower flotation cost about retaining the earning in the company rather paying it out to
the shareholders (Rao, 1992). The dividend affects long term financing and immediate
corporate financial indicators like net profit, market price per share, book value per share and
earnings per share. Decision regarding the dividend is a very crucial factor for every
corporation.

Mehta (2013) showed that size and risk are the two most important considerations in deciding
the dividend policy. This study also concluded that the larger size firms pay out more
dividends as compared to firms with smaller size. It also revealed that the profitability of the
firms as measured by ROE has negative relationship with dividend payout, which indicates
that the more profitable firms pay fewer dividends. Also contrary to the literature, in
developed countries, this study did not support the relevance of liquidity as a most important
consideration of dividend policy, and found that liquidity and leverage are insignificant in
influencing the dividend payout decision.

The studies of Jensen et al. (1992), Agrawal and Jayaraman (1994), Faccio et al. (2001),
Gugler and Yurtoglu (2003), Al-Malkawi (2007) have found that firm’s leverage is
negatively related to dividends. These studies inferred that highly levered firms look forward
to maintaining their internal cash flow to fulfil duties, instead of distributing available cash to
shareholders and protect their creditors. Specifically, Aivazian et al. (2003) state that firms
with less debts have greater financial slack and are willing to pay more dividends. Similarly
Al-Malkawi (2007) confirmes that the firm’s financial leverage is negatively related to its
dividend policy where as Kania and Bacon (2005) found a significant positive relationship,
bringing out the fact that the firms have higher debt funds to pay off dividends.

Sawicki (2005) illustrated that dividend payouts are one factor that can help to monitor the
performance of large firms. Large firms feature greater information asymmetry as a result of
the dispersion of ownership and the diluted power of shareholder ownership, leading to a lack
of ability to monitor the activities of the firm, both internally and externally, resulting in
management inefficiency. According to Holder et al. (1998), larger firms have greater access
to financial markets, making it easier for them to reduce their costs, become more profitable
and pay higher dividends.

The principal factor that contributes to deviations from the optimal payout ratio is due
changes in the company’s profit, and if profit increases the dividend payout should increase
in the same proportions (Mayer & Bacon, 2004). But uncertainty regarding future profit also
has an impact on the company’s dividends. If the estimated risk in the future is higher than
the current risk, the company may decrease the dividend payout in order to hedge the
decreasing future profits (Friend & Puckett, 1964).

There are corporate laws that put limitations on the distribution of dividends, as corporations
have to keep reserves for the protection of creditors overall interest. Therefore, a good policy

2
is required to maintain a balance between shareholders interest with that of corporate growth
from internally generated funds. The return on shareholders should be better paid as
dividends since shareholders have invested opportunities to employ elsewhere. Financial
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 dividends received,
but a more accurate measured is the market value of stock (Bacon, 2004).

In the context of Nepal, the declaration and payment of dividend of the enterprises are
governed by company act 2006. The provisions of banking and financial institutions act
(2006), and unified directives (2013) issued by Nepal Rastra bank govern the declaration and
payment of dividend by the banks and finance companies in Nepal. The provisions from
companies act (2006) indicate that dividends to be paid out from profits of that fiscal year for
which the resolution passed regarding the payment of dividends by the annual general
meeting.

Pradhan & Adhikari (2003) revealed that managers of Nepalese enterprises assign the first
priority to earning, second priority to availability of cash, the third to past dividend, fourth to
concern about maintaining or increasing stock price in regarding the factor affecting dividend
policy. Moreover, the study confirmed that cash dividend is paid to communicate the
shareholders that their companies are doing good.

Pokharel (2005) conducted a study to highlight the dividend behavior of Nepalese

commercial banks and concluded that the dividend behavior of commercial banks in Nepal
was not uniform and the earning per share and net profit affects the dividend behavior
differently in different commercial banks. Shah (2009) surveyed the views of financial
executives on practices of dividend policy in Nepal and revealed that among others, stability
of earnings, level of current earnings, and pattern of past dividends are the three important
factors in order of their importance determining dividend policy of corporate sector.

Bhandari & Pokharel (2012) attempted to elucidate the dividend practices of commercial
banks of Nepal. Abound by controversies and unpredictability, this study concludes that
commercial banks of Nepal do not show uniform trend of dividend policy. Dividend policy
practiced by commercial banks of Nepal is neither fully explained by residual theory nor
stable theory. With the development of financial institutions in Nepal, they need to follow a
robust method of dividend policy so that investors can predict stock market and make a
rationale investment decision.

This study aims at examining the impact of firm specific variables on dividend payout of
Nepalese commercial and development bank. Specifically, it examines the impact of
profitability, leverage, risk, liquidity and firm size on dividend payout policy of banks in
Nepal.

The remainder of this study is organized as follows. Section two describes the sample, data,
and methodology. Section three presents the empirical results and the final section draw
conclusions and discuss the implications of the study findings.

2. Methodological aspects
This study is based on the secondary data analyses which were collected from 13 commercial
banks and 8 development banks in Nepal for the period from 2007/08 to 2013/14, leading to

3
the total of 147 observations. The secondary data are obtained from the annual reports of
respective sample banks, Banking and Financial Statistics of Nepal Rastra bank.

The pooled cross-sectional data analysis has been undertaken in the study. The research
design adopted in this study is causal comparative type as it deals with relationship of firm
specific variables with bank dividend payout policy. More specifically, the study examines
the effect of profitability, firm size, liquidity, risk and leverage on dividend payout. Table 1
shows the number of commercial and development banks selected for the study along with
the number of observations.

Table 1: List of sample banks along with the study period and number of observations
S.N. Samples Study Period Observations
Commercial Banks
1 Bank of Kathmandu Ltd. (BOK) 2007/08 – 2013/14 7
2 Citizen Bank International Ltd. (CBIL) 2007/08 – 2013/14 7
3 Everest Bank Ltd. (EBL) 2007/08 – 2013/14 7
4 Himalayan Bank Ltd. (HBL) 2007/08 – 2013/14 7
5 Kumari Bank Ltd. (KBL) 2007/08 – 2013/14 7
6 Lumbini Bank Ltd. (LBL) 2007/08 – 2013/14 7
7 Laxmi Bank Ltd. (LXBL) 2007/08 – 2013/14 7
8 Machapuchree Bank Ltd. (MBL) 2007/08 – 2013/14 7
9 NABIL Bank Ltd. (NABIL) 2007/08 – 2013/14 7
10 Nepal Investment Bank Ltd. (NIBL) 2007/08 – 2013/14 7
11 Nepal SBI Bank Ltd. (NSBI) 2007/08 – 2013/14 7
12 Prime Commercial Bank Ltd. (PCBL) 2007/08 – 2013/14 7
13 Standard Chartered Bank Ltd. (SCBL) 2007/08 – 2013/14 7
Total 91
Development Banks
1 Ace Development Bank Ltd. (ADBL) 2007/08 – 2013/14 7
2 Business Universal Development Bank Ltd. (BUDBL) 2007/08 – 2013/14 7
3 Clean Energy Development Bank Ltd. (CEDBL) 2007/08 – 2013/14 7
4 Infrastructure Development Bank Ltd. (IDBL) 2007/08 – 2013/14 7
5 Kasthmandup Development Bank Ltd. (KDBL) 2007/08 – 2013/14 7
6 Supreme Development Bank Ltd. (SDBL) 2007/08 – 2013/14 7
7 Siddhartha Development Bank Ltd. (SiDBL) 2007/08 – 2013/14 7
8 Vibor Development Bank Ltd. (VDBL) 2007/08 – 2013/14 7
Total 56
Total number of observation 147

Thus, the study is based on 147 observations.

The Model
As a first approximation, the model estimated in this study assumes that the banks’ dividend
payout depends on several independent variables. The independent variables considered are
return on assets, return on equity, earning per share, price earnings ratio, leverage, liquidity,
and firm size. Therefore the model takes the following forms:

Dividend payout =f (Size, ROA, ROE, EPS, LQD, LEV, Risk)

More specifically,

Model 1
DPSit = β0 + β1Sizeit+ β2ROAit + β3 ROEit + β4EPSit+ β5 LQDit + β6LEVit+ β7Riskit+ eit…………. (3.1)

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Model 2
CDPSit = β0 + β1Sizeit+ β2ROAit + β3 ROEit + β4EPSit+ β5 LQDit + β6LEVit+ β7Riskit+ eit…………. (3.2)

Where,

Size=log of total assets of bank, ROA=return on assets, ROE=return on equity, EPSit =

Earnings per share, LQD = Net cash flow per share, LEV = Debt equity ratio, and Risk =
Price earnings ratio, DPS = Total dividend per share and CDPS= Cash dividend per share
Similarly, erefers to the unexplained residual error terms, β0 is the intercept term, and β1, β2,
β3, β4, β5, β6 and β7 are the respective parameters or regression coefficients of the explanatory
variables. Similarly, eitis independent and identically distributed follows the normal
distribution with mean 0 and variance δ2.

Size
Osobov (2008), Hosami (2007), Aivazian (2003), Al-Twaijry (2007), Eriotis (2005), Ahmed
and Javid (2009), Kuwari (2009) and Olantundun (2000) supported that big size companies
pay higher dividends and smaller size companies pay less dividends, as smaller size firm find
it difficult to raise funds, as compared to large companies who have easier access to the
capital market and hence are less dependent on the internal funds, leading to more capability
to pay the dividends. Based on the above discussion, the study develops the following
hypothesis:

H1: The size of the company has a positive relationship with the dividend payout.

Profitability
Profitable firms with more stable net earnings can afford larger free cash flows and therefore
pay larger dividends. Farrelly et al. (1989), Pruitt & Gitman (1991), and Nissim & Ziv (2001)
found that dividend changes are positively related to earnings changes. The higher profitable
firms pay higher dividends. Aivazian, Booth and Cleary (2003) and Li and Lie (2006) have
maintained that firms are more likely to raise their dividends if they are large and profitable.
The profitability has been measured by return on equity, return on assets and earnings per
share.

H2: The profitability has a positive relationship with the dividend payout.

Risk
Riskier enterprises have both lower dividend payout and lower price earnings ratio (Friend &
Puckett, 1964). Thus, there exists a negative and significant relationship between risk and
dividend payout (Amidu & Abov, 2006; Rozeff, 1982; Friend & Puckett, 1964). Based on the
above discussion, the study develops the following hypothesis:

H3: Risk has a negative relationship with the dividend payout.

Leverage
Rozeff (1982) points out that firms with high financial leverage tend to have low payout
ratios in order to reduce the transaction costs associated with the external financing.
Similarly, Jensen et al. (1992), Agrawal and Jayaraman (1994), Faccio et al. (2001), Gugler
and Yurtoglu (2003), Al-Malkawi (2007) confirmed that the firm’s financial leverage is
significantly and negatively related to its dividend policy. Based on the above discussion, the
study develops the following hypothesis:

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H4: Leverage has negative relationship with the dividend payout.

Liquidity
Dividend payments depend more on cash flows which reflect the company’s ability to pay
dividends. It is a major determinant of the firm’s dividend payout policy (Amidu & Abor, 2006;
Gill et.al, 2006 and Kanwal & Kapoor, 2008). If the liquidity position of the firm is not good
then the firm will not be in a position to pay cash dividends (Waswa, Ndede, & Jagongo,
2014). A poor liquidity position means less generous dividends due to shortage of cash
(Ahmed & Javid, 2009). Based on the above discussion, the study develops the following
hypothesis:

H5: Liquidity has positive relationship with the dividend payout.

3. Presentation and analysis of data

Descriptive statistics

Table 2 shows the descriptive statistics. Clearly, dividend per share ranges from zero to NPR
130, leading to the average of NPR 17.99 while cash dividend per share ranges from zero to
NPR 80 resulting to the average of NPR 10.32.

Table 2: Descriptive statistics

N Minimum Maximum Mean SD
Dividend per share (Rs.) 147 0 130 17.99 1.83
Cash dividend per share(Rs.) 147 0 80 10.32 1.27
Return on assets (%) 147 -6.80 5.36 1.43 0.12
Return on equity (%) 147 -41.28 37.30 13.72 0.98
Earnings per share (Rs.) 147 -15.57 131.92 27.87 2.47
Risk (P/E ratio) 147 0 834.33 39.94 6.20
Leverage (D/E in times) 147 1.38 17.16 8.59 0.29
Liquidity (NCFPS) 147 -203.43 547.34 47.22 6.97
Size (Rs. in million) 147 5.72 872.75 233.40 216.11

The earnings per share range from minimum of NPR -15.57 to maximum of NPR 131.92
with an average of NPR 27.87. Likewise, the average of return on assets is noticed to be 1.43
percent where the minimum and maximum values are observed to be -6.80 percent and 5.36
percent respectively. The return on equity ranges from -41.28 percent to 37.30 percent
leading to the average of 13.72 percent. Similarly, total debt to total equity (leverage) ranges
from 1.38 times to 17.16 times leading to the average of 8.59 times, net cash flow per share
(liquidity) ranges from NPR -203.43 to NPR 547.34 leading to average of NRP 47.22.
Similarly, price earnings ratio ranges from 0 to 834.33 times leading to the average of 39.94
times. Likewise, the average size of the Nepalese banks is of NPR 233.4 million having
minimum value of NPR 5.72 million and maximum value of NPR 872.75 million.

Correlation analysis

Having indicated the descriptive statistics, the Pearson Correlation Coefficients have been
computed and the results are presented in Table 3.

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 Table 3: Correlation matrix for the dependent and independent variables
This table reveals the Pearson Correlation Coefficient between different pairs of bank specific variables. The
correlation coefficient are based on the data on DPS,CDPS, ROA, ROE, EPS, PE, DE, LQD, and Size from 13
commercial banks and 8 development banks with 147 observations for the period 2007/08 to 2013/14.
DPS CDPS ROA ROE EPS PE DE LQD In TA
DPS 1                
CDPS 0.739** 1              
ROA 0.510** 0.505** 1            
ROE 0.639** 0.598** 0.617** 1          
EPS 0.661** 0.695** 0.491** 0.624** 1        
PE 0.551** 0.475** 0.236** 0.258** 0.433** 1      
DE -0.194** -0.218** -0.232** 0.076 -0.024 -0.123 1    
LQD 0.375** 0.401** 0.234** 0.268** 0.417** 0.518** -0.238** 1  
In TA 0.624** 0.545** 0.366** 0.670** 0.632** 0.248** 0.280** 0.170* 1

The total dividend per share and cash dividend per share are negatively related to leverage
(debt equity ratio). The negative correlation between dividend payout (DPS and CDPS) and
debt equity ratio indicate that larger the ratio of debt equity, lower would be the dividend
payou (DPS and CDPS). The results also indicate that total dividend per share is positively
related to profitability (ROA, ROE, EPS), price earning ratio, liquidity (NCFPS), and size
which explains that increase in profitability, PE ratio, liquidity and firm size will also
increase total dividend per share. Similarly, there is a positive relation of cash dividend per
share with profitability (ROA, ROE, EPS), price earning ratio, liquidity (NCFPS), and size.
The higher amount of profitability, higher would be the dividend per share and cash dividend
per share.

Regression analysis

The regression of firm specific variables on dividend payout has been analysed by defining
bank dividend payout in terms of total dividend per share and cash dividend per share. The
regression of firm specific variables on cash dividend per share produced the results as
indicated in Table 4. The table indicates that beta coefficients are negative for debt equity
ratio. Thus larger the ratio of debt equity, lower would be the cash dividend per share. The
beta coefficient for debt equity ratio is significant at 1 percent.
The beta coefficients are positive for profitability (ROA, ROE, EPS), PE, liquidity and size.
The result shows that higher the profitability (ROA, ROE and EPS), higher would be the cash
dividend per share. Similarly, higher the ratio of price earnings, higher would be the cash
dividend per share. The results also show that larger the size of the banks, higher would be
the the cash dividend per share. The beta coefficients for ROE, EPS, PE ratio and size are
significant at 1 percent level of significance.

Table 4: Regression of firm specific variables on cash dividend per share

Model: CDPSit = α + β1ROAit + β2ROEit + β3EPSit + β4PEit + β6DEit + β6 LQDi + β6SZit t+ eit
This table presents regression results of CDPS on seven firm specific variables based on pooled cross-sectional data of 13
commercial and 8 development banks in Nepal with 147 observations from the year 2007/08 to 2013/14. The reported
values are intercepts and slope coefficients of respective explanatory variables with t-statistics in the parentheses.
Dependent variable is the cash dividend per share denoted as CDPSit, and independent variables are return on assets
(ROAit), Return on equity (ROEit), earning per share (EPSit), price earning ratio (PEit), debt equity ratio (LQDit) cash flow
(LQDit) and bank size (SZit). The reported results also include the values of F-statistics (F), adjusted coefficient of
determination (Adj. R2), and standard error of estimates (SEE).
Regression Coefficients of Adj.
F 2 SEE
Models Intercept R
ROA ROE EPS PE DE LQD SZ
I 2.729 5.314 49.70* 0.250 13.34

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 (1.77) (7.05)*
-0.281 0.773 80.79* 0.353 12.39
II
(-0.18) (8.99)*
0.375 0.357 135.30* 0.479 11.12
III
(0.29) (11.63)*
7.281 0.092 42.14* 0.220 13.61
IV
(5.99)* (6.49)*
18.436 -0.945 7.25* 0.041 15.09
V
(5.64)* (-2.69)*
6.774 0.066 27.84* 0.155 14.16
VI
(5.03)* (5.28)*
-100.64 15.603 61.35* 0.292 12.96
VII
(-7.08)* (7.83)*
-33.94 0.300 5.049 72.40* 0.494 10.95
VIII
(-2.29)** (7.67)* (2.32)**
-1.997 0.348 0.270 80.27* 0.521 10.67
IX
(-1.46) (3.68)* (7.18)*
6.303 0.393 0.257 -0.992 65.53* 0.570 10.10
X
(2.67)* (4.35)* (7.16)* (-4.19)*
5.461 0.393 0.215 0.037 -0.90 54.98* 0.597 9.79
XI
(2.37)** (4.49)* (5.79)* (3.23)* (-3.89)*
-33.446 0.279 0.173 0.037 -1.141 6.148 47.31* 0.613 9.58
XII
(-2.27)** (2.91)* (4.38)* (3.26)* (-4.69)* (2.67)*
-34.71 0.461 0.245 0.168 0.036 -1.082 0.002 6.236 33.47* 0.609 9.63
XIII
(-2.31)** (0.61) (2.27)** (4.09)* (2.89)* (-4.12)* (0.21) (2.68)*
Notes: 1. Figures in parentheses are t-values.
2. The asterisk (*), (**) sign indicates that the results are significant at 1 and 5 percent level of significance.
3. Dependent variable is cash dividend per share.

The regression of firm specific variables on dividend per share shows that beta coefficients
for the leverage(debt equity ratio) is negatively significant at 5 percent as indicated in Table
5. This indicates that increase in the leverage leads to decrease the dividend per share. The
positive coefficients have been observed for profitability (ROA, EPS, ROE), price earnings
ratio, liquidity, and size. The coefficients are significant for ROE, EPS, PE and size at 1
percent. It indicate that larger the size, higher would be the dividend per share. Similarly,
higher the ratio of leverage, lower would be the dividend per share. Likewise, higher
profitability higher would be dividend per share.

Table 4.5: Regression of firm specific variables on dividend per share

Model: DPSit = α + β1ROAit + β2ROEit + β3EPSit + β4PEit + β6DEit + β6 LQDi + β6SZit t+ eit
This table presents regression results of CDPS on seven firm specific variables based on pooled cross-sectional data of 13
commercial and 8 development banks in Nepal over seven years of data for a total of 147 observations. The reported
values are intercepts and slope coefficients of respective explanatory variables with t-statistics in the parentheses.
Dependent variable is the dividend per share denoted as DPSit, and independent variables are return on assets (ROAit),
Return on equity (ROEit), earning per share (EPSit), price earning ratio (PEit), debt equity ratio (LQDit) cash flow (LQDit)
and bank size (SZit). The reported results also include the values of F-statistics (F), adjusted coefficient of determination
(Adj. R2), and standard error of estimates (SEE). The single asterisk (*) sign indicates that result is significant at 1 percent
level, double asterisk (**) sign indicates that result is significant at 5 percent level.
Regression Coefficients of 2
F Adj. R SEE
Models Intercept
ROA ROE EPS PE DE LQD SZ
6.951 7.723 50.93* 0.255 19.16
I
(3.14)* (7.14)*
1.684 1.188 99.84* 0.404 17.14
II
(0.78) (9.99)*
4.365 0.489 112.25* 0.432 16.71
III
(2.32)** (10.59)*
12.899 0.155 63.27* 0.299 18.58
IV
(7.77)* (7.95)*
28.399 -1.212 5.69** 0.031 21.84
V
(6.02)* (-2.39)**
13.218 0.089 23.67* 0.134 20.65
VI
(6.73)* (4.87)*

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 -164.89 25.71 92.41* 0.385 17.40
VII
(-8.64)* (9.61)*
-0.331 0.690 0.318 78.10* 0.514 15.48
VIII
(-0.17) (5.02)* (5.81)*
4.267 0.384 0.092 78.91* 0.516 15.43
IX
(2.45)** (8.13)* (5.11)*
-0.514 0.702 0.208 0.093 74.50* 0.602 14.01
X
(-0.29) (5.65)* (3.93)* (5.73)*
8.929 0.751 0.201 0.086 -1.127 63.53* 0.631 13.47
XI
(2.81)* (6.24)* (3.93)* (5.47)* (-3.54)*
-90.304 0.458 0.95 0.085 -1.741 15.68 66.06* 0.690 12.35
XII
(-4.75)* (3.71)* (1.86) (5.89)* (-5.55)* (5.29)*
-89.29 0.494 0.432 0.100 0.091 -1.738 -0.012 15.53 47.01* 0.688 12.39
XIII
(-4.62)* (0.51) (3.05)* (1.89) (5.72)* (-5.15)* (-0.85) (5.19)*
Notes: 1. Figures in parentheses are t-values.
2. The asterisk (*), (**) sign indicates that the results are significant at 1 and 5 percent level of significance.
3. Dependent variable is dividend per share.

The table indicated that beta coefficient for price earnings ratio is positively significant at 1
percent with DPS which indicates that higher the price earnings ratio higher would be DPS of
the bank. These findings are consistent with the findings of Chigazie (2010), Rozeff (1982),
and Lloyd et al (1985).

4. Summary and conclusion

Corporate dividend policy has been the concern of financial managers, and firms at large.
Firms are faced with dilemma of sharing dividend to stockholders and retaining their earning
with the view to reinvesting it back into the business so as to promote further growth of the
business. The choice of a particular dividend policy by a bank is not usually accidental. It is
tailored to either meet the banks and shareholders needs. In the Nepalese context, the
declaration and payment of dividend of the enterprises are governed by company act 2006.
The provisions of bank and financial institutions act (2006), and unified directives (2013)
issued by Nepal Rastra bank govern the declaration and payment of dividend by the banks
and finance companies in Nepal.

This study aims at examining the relationship between firm specific variables and dividend
payout in Nepal’s banking sector. The study is based on pooled cross-sectional analysis of
secondary data of 21 banks for the period 2007/08-2013/14. As a first approximation to the
theory, this study hypothesizes that the bank dividend payout depends on several firm
specific variables such as ROA, ROE, EPS, PE ratio, leverage (total debt to total equity),
liquidity (net cash flow per share and size (log of total assets).

The study revealed that average dividend per share is NPR 17.99 while, the average cash
dividend per share is NPR 10.32. Likewise, average ROA has been observed to 1.43 percent
while the average ROE is 13.72 percent. The average earning per share and liquidity are NPR
27.87 and NPR 47.22 respectively. The average price earnings ratio and leverage are 39.94
times and 8.59 times respectively. And the average total assets of the bank has been observed
to be NPR 233.40 million.

The dividend per share and cash dividend per share are negatively related to leverage. The
dividend per share is positively related to profitability, PE ratio, liquidity and size. Similarly,
there is a positive relation of cash dividend per share with profitability, PE ratio, liquidity and
size. The beta coefficients for return on equity, price earnings ratio and size have positively
significant impact on DPS. The beta coefficients for return on equity, earning per share, price

9
earning ratio and size are positively significant with CDPS. The leverage was found to be
negatively significant with CDPS.

10
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Check all those above highlighted references. Put

only those which are journals and remove all other
from above article and from the reference also. And
plz, correct it in the same file.

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