1

FACTORS AFFECTING SHARE PRICE OF COMMERCIAL BANK

By

Laxmi Dhakal

Kasturi College of Management

Exam Roll No: -5800003

T.U. Regd.No.-7-1-218-585-98

A Thesis Submitted to:

Office of the Dean

Faculty of Management

Tribhuvan University

In partial fulfillment of the requirement for the Degree of

Master of Business Studies (MBS)

Itahari, Sunsari, Nepal

April 2018

i
 RECOMMENDATION

This is to certify that the Thesis

Submitted by

Laxmi Dhakal

Entitled

Factors Affecting Share Price of Commercial Bank

has been prepared as approved by Department in the prescribed format of

The Faculty of Management. This thesis is forwarded for examination.

…………………………. ……………………………

(Thesis Supervisor) (Head, Research Department)

Date:- 2075-01-10
 VIVA-VOCE SHEET

We have conducted the viva-voce of the thesis presented

By

Laxmi Dhakal

Entitled

Factors Affecting Share Price of Commercial Bank

and found the thesis to be the original work of the student and written according to the

prescribed format. We recommend the thesis to be accepted as partial fulfillment of the

requirement for the degree of

Master of Business Studies (MBS)

Viva-Voce Committee

Head, Research Department …………………………………

Member (Thesis Supervisor) …………………………………..

Member (External Expert) ………………………………….

Date:- 2075-02-11

iii
 DECLARATION

I hereby declare that the work reported in this thesis entitled Analysis of factors affecting

share price of commercial bank submitted to Office of the Dean, Faculty of Management,

Tribhuvan University, is my original work done in the form of partial fulfillment of the

requirements for the degree of Master of Business Studies (MBS) under the supervision of

Bhabanath Ghimire, Lecturer of Kasturi College of Management T.U.

……………………………..

Researcher

Laxmi Dhakal

Kasturi College of Management

 ACKNOWLEDGEMENT

The study has been prepared for partial fulfillment of the requirement for the Master’s Degree

in Business Studies. It is my privilege to complete this thesis entitled, Factors affecting share

price of commercial bank, is an outcome of continuous cooperation and support of several

hands and heads. I would like to express my heartful gratitude to all for their support. I would

like to appreciate the people helping me and contributing in writing this thesis.

Firstly, I express the gratitude for overall brilliant assistance and very useful

comments to my supervisor Mr. Bhabanath Ghimire. In addition, I am thankful to the head of

the research department Prof. Dr. Kedar Prasad Poudel. I am also extremely indebted to all

the teachers of Kasturi College of Management, who encouraged me in my entire academic

attempt.

I would like to express tremendous gratitude to my younger brother Mr. Hemraj

Adhikari for helping me to complete this study. Without his help I could not have been able

to conduct the study.

Special thanks to my wife Saraswati Kandel, for fully supporting and typing the

necessary data of the thesis.

Last but not the least, I would like to thank for absolute support to my elder brother

Santosh Dhakal. Also, thanks for unconditional love and support to my lovely mother and

father for the advice and support to complete this study.

At the end, I would like to express gratitude to all my friends and colleagues, who

kept me, float when some moments were hard.

Laxmi Dhakal

April, 2018

v
 ABBREVIATIONS

ASBA : Application Supported by Blocked Amount

BVPS : Book Value per Share
CDS : Central Depository System
CV : Coefficient of Variation
DMAT : De materialization
DPS : Dividend per Share
EBL : Everest Bank Limited
EPS : Earning per Share
HBL : Himalayan Bank Limited
IPO : Initial Public Offering
ICRA : Industrial Credit Rating Agency
MPPS : Market Price per Share
NIBL : Nepal Investment Bank Limited
NABIL : Nabil Bank Limited
NEPSE : Nepal Stock Exchange
NRB : Nepal Rastra Bank
NRN : Non-Residential Nepalese
OTC : Over the Counter Market
P/E Ratio : Price Earning Ratio
SBI : Nepal SBI Bank Limited
SBL : Siddharthha Bank Limited
SANIMA : Sanima Bank Limited
SD :Standard Deviation
SEBON : Security Board of Nepal
SEC : Security Exchange Center
 TABLE OF CONTENTS

Recommendation II
Viva Voce Sheet III
Declaration IV
Acknowledgement V
Abbreviations VI
Table of Contents VII
List of Tables XI
CHAPTER: 1 INTRODUCTION 1-16
1.1 Background of the Study 1
1.2 Financial Market of Nepal 5
1.2.1 Classification of Financial Markets 6
1.2.1.1 Money Market 6
1.2.1.2 Capital Market 7
1.5 Commercial Banks 9
1.5.1 Commercial Banks in Nepal 9
1.5.2 Commercial Banks under Study 11
1.5.2.1 Everest Bank Limited 11
1.5.2.2 Himalayan Bank Limited 11
1.5.2.3 Nabil Bank Limited 11
1.5.2.4 Nepal Investment Bank Limited 11
1.5.2.5 Nepal SBI Bank Limited 12
1.5.2.6 Siddhartha Bank Limited 12
1.5.2.7 Sanima Bank Limited 12
1.6 Statement of the Problem 13
1.7 Objective of the Study 13
1.8 Significance of the Study 14
1.10 Limitations of the Study 15
1.11 Organization of the Study 15
CHAPTERII: REVIEW OF LITERATURE 17-35
2.1 Conceptual Framework 17
2.1.1 Common Stock 17
2.1.2 Earning Per Share 19

vii
 2.1.3 Retained Earning 19
2.1.4 Dividend 19
2.1.5 Book Value per Share 20
2.1.6 Market Price per Share 20
2.1.7 Par Value 22
2.1.8 Price Earning Ratio 22
2.2 Security Markets 24
2.3 Stock Market and Stock Exchange 24
2.4 Security Board of Nepal 25
2.5 Nepal Stock Exchange (NEPSE) 26
2.6 CDS and Clearing Limited 28
2.7Review of Previous Studies 28
2.8 Nepalese Context 30
2.9 Review of Master’s Degree Thesis 32
2.10 Research Gap 34
CHAPER III: RESEARCH METHODOLOGY 36-43
3.1Research Design 36
3.2 Population and the Sample 36
3.3 Sources and Nature of Data 37
3.4 Data Collection Techniques 38
3.5 Data Processing 38
3.6 Data Analysis Tools 48
3.6.1 Financial Tools 39
3.6.1.2 Earning per Share 39
3.6.1.3 Dividend per Share 39
3.6.1.4 Market Price per Share 39
3.6.1.5 Price Earning Ratio 40
3.6.1.6 Book Value per Share 41
3.6.2 Statistical Tools 41
3.6.2.1 Arithmetic Mean 41
3.6.2.2 Standard Deviation 42
3.6.2.3 Coefficient of Variation 42
3.6.2.4 Correlation Coefficient 42
3.6.2.5 Coefficient of Determination 43
 3.6.2.6 Regression Analysis 43
CHAPTER IV: PRESENTATION AND ANALYSIS OF DATA 44-73
4.1 Introduction 44
4.2 Financial Analysis 44
4.2.1 Earning per Share 45
4.2.1 Dividend per Share 46
4.2.3 Market Price per Share 46
4.2.4 Price Earning Ratio 47
4.2.5 Book Value per Share 48
4.2 Statistical Analysis 49
4.2.1 Mean, Standard Deviation and Coefficient of Variation 49
4.2.2 Relationship between EPS, DPS and BVPS to MPS 53
4.2.3 Correlation Analysis 54
4.2.4 Regression Analysis 55
4.3 Primary Data Analysis and Presentation 57
4.3.1 Classification of Respondents 57
4.3.2 Reason of Investor Attraction in Share of Commercial Bank 58
4.3.3 Publication of Financial Reports Changes a Company’s Share Price 59
4.3.4 Role of EPS in Determination of Share Price 60
4.3.5 Role of Dividend in Determination of Share Price 60
4.3.6 Role of Book Value per Share in Determination of Share Price 61
4.3.7 Investment Based on P/E Ratio 61
4.3.8 Public Awareness about Share Investment 62
4.3.9 Investment Analysis 62
4.3.10 NEPSE and SEBON Role on Investor’s Interest 63
4.3.11 Role of NRB’s Policy Affect Share Price 63
4.3.12 Role of Interest Rate in Share Price 64
4.3.13 Fulfillment of Paid up Capital Requirement of Commercial Bank 64
4.3.14 Role of Political Situation 65
4.3.15 Analysis of Free Opinions of Respondents 66
4.4 Major Findings of the Study 67
4.4.1 Findings from Secondary Data 67
4.4.2 Findings from the Survey 68

ix
CHAPTER V: SUMMARY, CONCLUSION AND RECOMMENDATION 71-79
5.1 Summary 71
5.2 Conclusion 74
5.3 Recommendation 76
References 80-82
Appendices 83-99
A 83
B 86
C 87
D 93
E 98
F 103
 LIST OF TABLES

1.1 List of Commercial Banks in Nepal 10

3.1 Details of Sector and Sample Size 37
3.2 Details of Variables 37
4.1 EPS of Sample Banks 44
4.2 DPS of Sample Banks 45
4.3 MPS of Sample Banks 46
4.4 P/E ratio of Sample Banks 47
4.5 Book Value per Share 48
4.6 Mean, S.D & CV of MPS, EPS, DPS and BVPS 49
4.7 Relationship of MPS with EPS, DPS and BVPS 54
4.8 Regression Coefficient of MPS on EPS 55
4.9 Regression Coefficient MPS on DPS 56
4.10 Classification of Respondents 58
4.11 Public Attraction in Commercial Banks 59
4.12 Publication of Financial Reports and Share Price 59
4.13 EPS and Share Price Relation 60
4.14 Role of Dividend on Share Price 60
4.15 Book Value per Share and Market Price 61
4.16 Reliable on P/E Ratio 61
4.17 Investor Awareness about Share Investment 62
4.18 Performance of Analysis on Share Investment 62
4.19 NEPSE and SEBON Protect Investor’s Interest 63
4.20 Role of NRB Policy on Share Price 63
4.21 Increase in Interest Rate and Share Price 64
4.22 Commercial Banks Capital Requirement and Share Price 65
4.23 Political Situation Changes the Share Price 65

xi
 Chapter-I

Introduction

1.1 General Background

Capital refers to financial assets or the financial value of assets, such as funds held in

different deposit accounts, as well as the tangible machinery and equipment used in the

environment such as factories and other manufacturing facilities. Additionally, capital

includes facilities, such as the buildings used for the production and stocking of the

manufactured goods. Money is used simply to purchase goods and services for consumption,

capital is more durable and is used to generate wealth through investment. Examples of

capital include automobiles, patents, software and brand names. All these items are inputs

that can be used to create wealth. Capital is the heart of every business organizations. Every

business enterprise requires short term, mid-term and long-term capital fund for the smooth

operations and expansion of organizational activities. Long-term funds play highly significant

role for future growth and prosperity of the organization. Most business organization collect

long term funds from financial market. Market refers to the place where buyer and seller

come together to perform the trade.

The economy of the country largely depends upon the utilization of its resources and

mobilization of capital. The mobilization of the capital is an important tool to utilize the

resources and hence it affects the overall economy directly and indirectly. The financial

institutions contribute the national economy by accumulating the scattered capital funds to

meet the financial needs of different productive sectors like hydropower development,

agricultural sector development, and solar energy development. These financial institutions

actively participate in the money market and the capital market, as both suppliers and

demanders of the funds.

 Money market is a part of the fixed income securities market. Money market consists

of very short-term debt securities that normally mature in one year or less. Hence money

market is a market in which short-term securities are bought and sold. Various financial

instruments have been created for the purposes of short-term lending and borrowing. Some

specialized instruments are treasury bills, certificate of deposits, commercial paper, bankers’

acceptances, treasury notes and bonds, municipal bonds and corporate bonds.

Capital markets are the markets in which companies and governments raise capital,

and where securities, such as shares and bonds, are traded. Capital markets refer to activities

that gather funds from some entities and make them available to other entities needing funds.

For companies, capital markets expand the range of funding source, including public equity

markets, private equity, and the issuance of debt securities such as bond. For savers, they

provide alternative investment opportunities and risk-adjusted returns. Capital markets

consist of suppliers and users of funds. Capital markets include primary markets, where new

equity stock and bond issues are sold to investors, and secondary markets, which trade

existing securities. Stock exchange is the market for long term capital where both new capital

can be raised by companies and where existing share can also traded. By providing secondary

market for investors to buy and sell their shares, the stock exchange also provides a market

for government loans and securities. Capital market is the secondary market of stock which is

the only market for liquidating capital market instruments like share and debentures. In this

respect, capital market plays a crucial role in mobilization a constant flow of saving and

changing these financial resources for expanding productive capacity in the countries. Stock

market is a medium through which corporate sector mobilizes funds to finance productive

projects by issuing shares in the market.

Similarly, stock market provides the best investment opportunity to the investors.

Further, many profitable projects require a long-term venture capital to finance. Most investor

xiii
tempts to provide risk and is reluctant to tie their saving into the long-term commitment.

Liquid stock market makes the investment less risky and more attractive. It encourages savers

to invest in the long-term projects because they can sell securities quickly and easily, if they

want to get back their saving before the project matures. At the same time, companies receive

easy access to capital through new issuance of shares.

The history of equity capital market trading in Nepal started from 13 January, 1994,

24 years before now, but in past the concept of capital market began with the floatation of

shares by Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. In 1937A.D. Securities Exchange

Center (SEC) was established in 1976 with the objective of facilitating and promoting the

growth of capital markets. Before conversion into a stock exchange it was the only capital

market institution undertaking the job of brokerage, underwriting, managing public issues,

market making for government bonds and other financial services. However, its floor for

secondary trading of shares was opened only in 1981, which was only for government bonds.

Under the provision of Securities Exchange Act 1984, SEC opened its floor for corporate

share trading also, but it was very limited. The full-fledged stock market trading began with

the conversion of Securities Exchange Centre (SEC) into Nepal Stock Exchange (NEPSE)

Limited in 1993. The NEPSE trading floor was opened since 13 January 1994.

In June 1993 Security Board of Nepal (SEBON) was established as a market

regulator. SEBON is the supreme body to regulate the Nepalese securities market. The main

objective of SEBON is to promote and protect the interest of investors by regulating the

securities market, to monitor and control the entire capital market. Its main functions are to

provide licenses to stock exchange and securities business and to monitor the activities

performance by NEPSE. The NEPSE index is the benchmark index that is taken as the

measure of performance of overall listed companies.

Normally the stock market index is taken as economic barometer of a country. Growth in

stock index is normally considered as a good sign since it implies the investors are confident

about the future prospect of the economy. Decline in stock index is considered as a bad sign

since it indicates that the investors are pessimist about the future prospect of the economy.

The rise and fall in index occurs due to various macroeconomic and microeconomic variables

in the economy. Any factor that influence cash flows of firms or discount rate will have

impact on share price in the stock market. (Shrestha and Subedi 2015)

Generally, the price of share is determined by the law of demand and supply of the

market. But there are other qualitative and quantitative forces that determine the price of the

stock. The major determinants of share price are earning per share (EPS) of the company,

dividend payout ratio or dividend per share (DPR or DPS), price earnings ratio (PE ratio),

book value per share, size of the firm, NRB policy, monetary policy, fiscal policy, corporate

governance, interest rate, political conditions, Gross Domestic Product (GDP), news, rumours

and many other factors. The knowledge of such factors and their possible impact on share

prices is highly appreciable as it would help investors make wise investment decisions and

enable firms to enhance their market value. Shiller (1985) found that stock prices are not

stable and fluctuate excessively in relation to the news about fundamentals, such as dividend

and bonus, due to the irrational investors in the market. Thus, understanding the impact of

various fundamental variables on stock price is very much helpful to investors as it will help

them in taking profitable investment decisions.

The thesis deals with an attempt to analyze the factors and variables that influence the

performance of share price of commercial banks in Nepalese context. Hence the main

objective of this study is to analyze the factors affecting the share price and investigate the

relationship between the firm specific variables and market price per share of Nepalese

xv
commercial banks. Specially, it examines the impact of earning per share, dividend per share,

book value per share and price earnings ratio, in the market price per share.

1.2 Financial Market in Nepal

The financial market can be defined as the market which provides facilities for buying and

selling of financial claims and services. It is a place where financial instruments are traded.

Financial markets provide an opportunity to meet the suppliers of fund and demanders of

funds. Financial markets enable individuals to choose between current and future

consumption. It also provides the opportunity of interaction between buyers and sellers to

determine the price of the assets.

The financial market in Nepal is not basically different from the financial market in

general. Hence, it has been explained shortly in this study. The financial market is still in

infancy stage in Nepal. Since, the financial market plays an important role in the efficient

distribution and use of resources, it is extremely important in a developing country like

Nepal, where there are plenty of resources available and there is no enough capital for

investment in different sectors. The system of lending and borrowing in an un-organized way

is prevalent in Nepal since the very beginning. Even today, substantial portion of rural credit

is available from the unorganized sector.

The system of collecting deposit and granting loans in the organized sector had started

with the establishment of Nepal Bank Limited in 1994 B.S. There are many changes taking

place in the financial system of Nepal due to financial liberalization. The business activities

are increasing rapidly. The situation of monopoly has come to an end and age of competition

has emerged in Nepalese financial system. Many commercial banks, finance companies,

microfinance, co-operative and development bank have been established to cater the credit

need of individuals and business firms.

 1.2.1 classification of financial markets. There are mainly two types of financial market.

First, one is money market and second one is capital market. Short-term funds of firm are

raised from money market and long and middle term funds of firms are raised from

secondary market. This can be explained below:

1.2.1.1 money market. Money market is a market in which only short-term financial

instruments are traded. Money market is also known as short-term financial market. The

financial market in which funds are borrowed for short period is money market. Generally,

money market trades commercial papers, certificates of deposit, short-term bonds and

government treasury bill. Nepalese money market can be divided as the organized and un-

organized sector. Under the organized sector commercial banks, co-operative, microfinance,

development bank, and finance companies are working. Under the un-organized sector,

creditors, local merchants, landlords, friends and relatives are working.

1.2.1.2 capital market. Capital market is a market in which only long-term financial

instruments are traded. It is the place where financial claims and obligations are bought and

sold that have maturity period of more than one year. The capital markets allow firms and

government to finance spending more than their current incomes. Long-term funds of firms

are collected from the capital market. Hence, capital market is a long-term credit market. The

capital market is designed to finance long-term investments; financial instruments traded in

the capital market have original maturities of more than one year. There are various

instruments or securities used in the capital market such as stock, bonds or debentures,

mutual fund units etc. Development and expansion of capital market is essential for the rapid

growth of the company. The capital market consists of both non-securities market and

securities market. Non -securities market refers to the mobilization of the financial resources

by the financial institutions in the form of deposits and loans. Capital market can be divided

into two types: primary market and secondary market.

xvii
Primary Capital Market

The term primary market is used to denote the market for the original sale of securities by an

issuer to the public. When a company issues stock or bonds for the first time and sells those

securities directly to investors, that transaction occurs on the primary market. Some of the

most common and well-publicized primary market transactions are IPOs, or initial public

offerings. During an IPO, a primary market transaction occurs between the purchasing

investor and the investment bank underwriting the IPO. Any proceeds from the sale of shares

of stock on the primary market go to the company that issued the stock, after accounting for

the bank's administrative fees. The issuer (Company) collects amount and invest in the

productive sector to earn the profit.

Secondary Capital Market

Secondary market is the market in which securities are traded that has been issued in the past.

Simply, secondary markets are markets in which existing outstanding securities are traded

between the investors i.e. buyers and sellers. The secondary market is where investors buy

and sell securities they already own. It is what most people typically think of as the "stock

market," though stocks are also sold on the primary market when they are first issued. The

national exchanges, such as the Nepal Stock Exchange in Nepal and New York Stock

Exchange in USA (NYSE) are secondary markets. Secondary market prices are often

determined by the basic forces of supply and demand. If the majority of investors believe a

stock will increase in value and rush to buy it, the stock's price will typically rise. If a

company loses favour with investors or fails to post sufficient earnings, its stock price

declines as demand for that security dwindles. There are two types of secondary markets;

over the counter markets and organized security exchange.

Over the Counter Market/ OTC Market.

The market where the securities of the companies, not listed in the stock exchange or delisted

from there, are traded is called ‘Over-The-Counter Market’. Intermediates and authorized

dealers head such kinds of securities transaction. The proceeds from sale of securities in the

secondary markets don’t go to the organizational issuer instead to the initial owners of the

securities. The over-the-counter (OTC) market is not a formal exchange. There are no

membership requirements and many brokers register as dealers on the OTC. At the same

time, there are no listing requirements and thousands of securities are traded in the OTC

market. OTC stocks are usually considered as very risky because they are the stocks that are

not considered large or stable enough to trade on the major exchange.

Organized Stock Exchange/Registered Stock Market.

This type of market is registered in the government agency. There is only one registered

stock exchange i.e. Nepal Stock Exchange (NEPSE) in Nepalese securities market. It trades

the securities of listed companies for the public. Here, transactions of only listed companies

are made. An organized security exchange provides the facility for the members to trade

securities, and only exchange members may trade there. The members include brokerage

firms, which offer their services to individual investors, institutional investor by charging

commissions for executing trades on their behalf. Other exchange members buy or sell for

their own account, functioning as dealers or market makers who set prices at which they are

willing to buy and sell for their own account. Exchanges play very important role in the

modern economies by performing the following tasks:

• Supervision of trading to ensure transparency and efficiency.

• Creation of an environment in which securities prices are formed efficiently and without

distortion.

xix
1.3 Commercial Bank

Commercial bank is a financial institution that provides services such as accepting deposits

providing business loans. It plays an important role in the economic development of the

country. Commercial banks play the role of economic development through facilitating the

intermediary process in between capital surplus and deficit. Commercial banks accumulate

the scattered capital and mobilize it to the needed sector of the economy. They play a dual

role of mobilizing the capital as well as allocating the limited resources towards people’s

needs. The name bank is derived from the Italian word ‘banco’ which refers to carry out the

transactions on a desk. The history of modern bank begins from the establishment of Bank of

Venice in 1157 A.D. The general role of commercial bank is to provide financial services to

public, business firms and government ensuring economic and social stability and sustainable

growth of the economy.

1.4 Commercial Banks in Nepal

The history of modern banking in Nepal was started from the establishment of Nepal Bank

Ltd., in 1937A.D. which was the first commercial bank of Nepal. Before the establishment of

Nepal Rastra Bank (NRB) in 1966 A.D, the role of commercial bank and central bank both

was performed by Nepal Bank Ltd. After the government adopted the liberal economic policy

in the mid 80’s the first private sector commercial bank Nabil Bank Ltd., was established in

1984 A.D. In 2041 B.S. a first joint venture commercial bank Nepal Arab Bank Ltd., was

established. After that many other joint ventures banks and private sector bank has been

established.

The Nepal Rastra Bank (NRB) is the regulating and monitoring agency of all the

financial institutions. The capital structure, shareholding pattern, cash reserve ratio, interest

rates determination, sector of investment and proportion of a commercial banks is totally

influenced by NRB policies. Recently the commercial banks are suffering from the paid-up
capital increment issue. The commercial banks of Nepal are required to maintain the

minimum paid-up capital of Rupees 8 Arab till the end of fiscal year 2074/075. Most of the

bank has met the requirement now; some are still working for this. Currently there are 28

commercial banks operating in Nepal. They are presented in the following table.

Table 1.1
List of the Commercial Banks and Their Establishment Date
S.N. Name of Banks Operation Date
1. Nepal Bank Limited 1937/11/15
2. Rastriya Banijya Bank 1966/01/23
3. Agriculture Development Bank 1968/01/02
4. NABIL Bank Limited 1984/07/16
5. Everest Bank Limited 1994/10/18
6. Standard Chartered Bank Nepal Limited 1987/01/30
7. Nepal Investment Bank Limited 1986/02/27
8 Himalayan Bank Limited 1993/01/18
9. Nepal SBI Bank Limited 1993/07/07
10. Nepal Bangladesh Bank Limited 1993/06/05
11. Bank of Kathmandu Ltd. (after merger BOKL) 1995/03/12
12. Nepal Credit and Commerce Bank Limited 1996/10/14
13. Machhapuchhre Bank Limited 2001/10/03
14. Global IME Bank Limited 2007/01/02
15. NIC Asia Bank Limited (Joint operation after merger) 2013/06/30
16. Kumari Bank Limited 2001/04/03
17. NMB Bank Limited 1996/11/26
18. Sunrise Bank Limited 2007/10/12
19. Prime Commercial Bank Limited 2007/09/24
20. Laxmi Bank Limited 2002/04/03
21. Janata Bank Limited 2010/04/05
22. Pravu Bank Limited (joint operation after merger) 2016/02/12
23. Siddhartha Bank Limited 2002/12/24
24. Mega Bank Limited 2010/07/23
25. Civil Bank Limited (joint operation after merger) 2016/10/17
26. Century Commercial Bank Limited 2011/03/10
27. Citizens Bank International Limited 2007/06/21
28. SANIMA Bank Limited 2012/02/15
Out of the 28 commercial banks only 27 of them are listed in NEPSE. Rastriya Banijya Bank

is not listed in Nepal Stock Exchange yet.

xxi
 1.4.1 commercial banks under study. In this study seven commercial banks listed in the

NEPSE are taken for analysis. The short introduction of these banks is presented below.

1.4.1.1 Everest Bank Limited. Everest Bank Limited is a joint venture of Nepal and

Punjab National Bank of India. It started its operation since 1994 with a view and objective

of extending professionalized and efficient banking services to various segments of the

country. Punjab National Bank holds 20% equity of EBL. The bank head office is in New

Baneshwor, Kathmandu. In the study, the bank is denoted as EBL the trading symbol given

by NEPSE.

1.4.1.2 Himalayan Bank Limited. Himalayan Bank Limited (HBL) was established in

1993 in joint venture with Habib Bank Limited of Pakistan. The bank was established by a

few businesspersons of Nepal in partnership with the employees Provident Fund and Habib

Bank Limited of Pakistan. The bank commenced its operation from January 1993 A.D. The

bank head office is in Thamel, Kathmandu. In the study, the bank is denoted as HBL the

trading symbol given by NEPSE.

1.4.1.3 Nabil Bank Limited. Nabil Bank Limited is the nation’s first private sector bank,

commencing its business since July 1984. Nabil was incorporated with the objective of

extending international standard modern banking services to various sectors of the society.

The bank has a history of constant dividend payout ratio of more than thirty percent. In the

study, the bank is denoted as NABIL the trading symbol given by NEPSE.

1.4.1.4 Nepal Investment Bank Limited. Nepal Investment Bank Limited is one of the

company with largest paid up capital 10626 million among all commercial was previously

called as Nepal Indosuez Bank Ltd. It was established in 1986 as a joint venture between

Nepalese and its French partner Credit Agricole Indosuez, a subsidiary of one of the largest

banking group in the world. In 2002 the 50% share of credit Agricole Indosuez was acquired

by a group of companies comprising of bankers, professionals, industrialists and businessman

and then the name was changed to Nepal Investment Bank Limited. Its head office is in

Durbarmarg, Kathmandu. Presently the bank has 61 branches in different parts of the country.

In the study, the bank is denoted as NIBL the trading symbol given by NEPSE.

1.4.1.5 Nepal SBI Bank Limited. Nepal SBI Bank Limited is the first Indo-Nepal joint

venture in the financial sector sponsored by three institutional promoter’s namely state bank

of India, Employees Provided Fund and Agriculture Development Bank of Nepal through a

memorandum of understanding signed on 17th July 1992. The bank was incorporated as a

public limited company at the office of the company register on April 28, 1993 A.D. and was

licensed by NRB on July 6, 1993. The bank commenced its operation from 7th July 1993 A.D.

In the study, the bank is denoted as SBI the trading symbol given by NEPSE.

1.4.1.6 Siddhartha Bank Limited. Siddhartha Bank Limited commenced its operation in

2002. The bank is promoted by some of the prominent personalities of Nepal. Siddhartha

Bank Limited today stands as one of the consistently growing bank in Nepal. In the study, the

bank is denoted as SBL the trading symbol given by NEPSE.

1.4.1.7 Sanima Bank Limited. Sanima bank is promoted by prominent and dynamic Non-

Resident Nepalese (NRNs) businessman commenced its operation in 2004 as a National

Level Development Bank. Since February 2012 Sanima has been functioning as an 'A' class

commercial bank with its registered office at Naxal, Kathmandu. Sanima bank offers a wide

range of banking products and financial services to corporate and retail customers through 58

full-fledged branches from Mechi to Mahakali and one extension counter. The paid-up capital

of the bank as on 31st Ashad 2074 is Rs. 8,001,255,440.Sanima Bank is recognized as the

most well managed bank among all. As a result, the bank is able to maintain its non-

performing loan under 0.05% and has been the most chosen one among the investor.

xxiii
1.5 Statement of the Problem

Basically, stock price is determined by demand and supply. But there are many other

qualitative and quantitative factors that determine the stock price. It is unpredictable to

specify exactly what factors determine the stock price.The shares of the commercial bank

play a vital role in the overall index of NEPSE and the overall index is highly influenced by

the share price of the commercial banks. The sector wise contribution in total traded volume

in NEPSE is dominated by the financial sector. The shares of the publicly quoted commercial

banks seem to the basis of investment to all potential investors.

Only few investors of Nepalese share market are aware of the causing agent of share

price. It means most of the investors are unknown about the financial performance of the

company but tends to invest on the company without proper financial analysis. It causes the

unusual relation of the financial indicators EPS, BVPS, DPS etc. with the market price of the

share. In this context, this study will try to identify the determinants of stock price and find

out the degree of affection of those determinants. More specifically, this present study is

carried out to answer the following research questions:

-What are the major factors that change the stock price in NEPSE?

- How earning per share, book value and P/E ratio of the company affect on the stock price?

- What is the effect of the earning per share and dividend per share on the stock price?

- Are the investors aware of financial indicators, which influence the MPS of the company?

1.6 Objective of the Study

To make the investment activities more fruitful and profitable investors require proper

knowledge of share price i.e. how is share price formed, why does it fluctuate, what factor are

responsible for the changes of its price and so on. A few studies have been made regarding

securities listed in NEPSE, however, most of the studies made up to present capital structure

analysis, deposit mobilization of the companies, dividend policy and risk and return etc. but
sufficient researches have not been done to provide core prospective on the factors affecting

the stock price. This study aims to identify the factors respective for determinants of stock

price and their relationship with the stock price, so that it will give a better insight into the

stock price. Furthermore, this study is proposed to meet the following objectives:

- To evaluate the qualitative as well as quantitative factors affecting the stock price in NEPSE

with focus to commercial banks.

- To determine the effect of earning per share, book value and P/E ratio on the share price.

- To examine the individual effect of earning per share and dividend per share on the stock

price.

- To analyze the market trends of market price per share with financial indicators.

- To examine the impact of share price fluctuation.

1.7 Significance of the Study

A few studies have been made on the securities listed in NEPSE. Most of the studies made up

to present on capital market are related to financial performance evaluation, capital structure

analysis, deposit mobilization, dividend policy, risk and return etc. However, none of the

researches has yet been made on the core perspective of the determinants of the share price.

Therefore, the present study will be of substantial importance for investors, planners,

researchers, students and policy makers to meet their personal and organizational objectives.

This study attempts to construct the relation of MPS of the Nepalese commercial banks to the

major financial indicators like EPS, PE Ratio, BVPS, and DPS etc. The relation is hoped to

show the status of Nepalese commercial banks with respect to the determiners of share price.

These findings may be helpful to the potential investors to make the better investment

decision. Likewise, this thesis provides the information about the position of share price in

share industry. Moreover, the industrial average regarding different financial indicators are

xxv
helpful to compare with the individual banks. This information is expected to be helpful to

the managers of the respective banks.

1.8 Limitations of the Study

The study tries to explore the factors determining the stock price in Nepal stock exchange.

Since, the study is conducted in limited time and budget, so it may not provide the 100%

result. The lack of experience, limited time and budget is the main limitation. The other

limitations of the study are presented below:

-Limited financial and statistical tools are used.

-The study includes only commercial banks sector for the study. So, the findings and

conclusion obtained may not be applicable for other sectors of companies listed in NEPSE.

-Most of the primary data are based on research questionnaire. Therefore, the reliability and

validity of the data depends upon their source.

- Only the last five years data has been taken for analysing stock price determinants.

- The study is being based on secondary data, collected from the past trading data, so it may

not give the 100% result.

- The year end closing market price is taken as a base for the analysis, so the outcome may

not be exact.

Therefore, there is a need for different research that would focus on other sectors of

investment and complete the study. Limitations of this research are great milestones for

additional research, and they should be addressed in future studies.

1.9 Organization of the Study

The whole study is divided into five chapters and they are presented below.

Chapter I Introduction

First chapter includes general introduction of capital market and Nepal stock Exchange.

Except that, this chapter deals with the foundation of the study. It includes general
background, objective of the study, statement of the problem, significance of the study,

limitation of the study and organization of the study.

Chapter II Review of Literature

The second chapter reviews the relevant previous studies made on the stock price

determination and the principle set on stock market. This chapter includes the conceptual

framework on common stock, security market, earning per share, dividend per share, stock

price etc. except that, this chapter reviews the published books, journals and unpublished

thesis reports separately.

Chapter III Research Methodology

Chapter three includes the details framework of the study such as sample, population,

variables, statistical and financial tools and techniques to be used, sources of data, data

collection and analysis techniques. It also contains research design, sampling procedure, data

gathering procedure and its sources, data processing procedure and data analysis tools and

techniques.

Chapter IV Presentation, Interpretation and Analysis of Data

This chapter is the core and important body of the study. It deals with data presentation,

interpretation and analysis. It covers analysis of financial tools and analysis of statistics tools.

In this chapter, the primary and secondary data collected from different sources are presented

in systematic formats and analyzed using different financial and analytical tools.

Chapter V Summary, Conclusion and Recommendations

This is the last chapter it summarizes the words study and based on major findings, it draws

the conclusion and provide the relevant recommendation of the study and concludes the

reports with the major recommendations/ suggestions to the investors, sample commercials

banks and the governing body of Nepalese stock market. The Bibliography and Appendices

have been given at the end of the study.

xxvii
 Chapter – II

Review of Literature

Review of literature means reviewing past studies which include the current knowledge

including substantive findings, as well as theoretical and methodological contributions to a

particular topic. It also includes the relevant propositions in the related area of the study so

that all the past studies, their conclusions and deficiencies may be known, and further

research can be conducted. A short glance of past studies in common stock and their

determinants are presented in this chapter. Many studies have been conducted to find out the

determinants of stock prices in different countries. Different studies carried over different

time periods across different markets have given varying results. In the context of Nepalese

financial market, no sufficient studies have been made in the area of stock market. However,

some articles and journals which are related to stock market are consulted and reviewed.

2.1 Conceptual Framework

Before getting into the core concept of factors determining the stock price, it is logical to be

familiar with some financial terms, which are frequently used in the research about capital

market and finance. So, in this section, some of the financial and technical terms related to

stock market are defined.

2.1.1 common stock. The common stock is an ownership share in a corporation. Common

stock or an equity share is the ownership of a company that gives the owner the right to

participate in electing the board of directors and voting on other matter brought before the

stockholders, in proportion to the number of shares hold. It is a residual claim in the sense

that creditors and preferred stockholders must be paid as scheduled before common

stockholders can receive any payments. The holders of common stock are called shareholders

or stockholders. Common stock is the permanent and vital source of capital since they do not

have a maturity date. As a return to the contribution of shareholders investment, they are
entitled to dividends. The amount or rate of dividend is fixed by the Board of Directors. In

the case of bankruptcy, common stockholders are in principle entitled to any value remaining

after all other claimants have been satisfied. The great advantage of the corporate firm of

organization is the limited liability of its owners.

Common stocks are generally “fully paid and non-assessable” meaning that common

stock holders may lose their initial investment, but not more than the amount invested in

common stock. That is, if the corporation fails to meet its obligations, the stockholders cannot

be forced to give the corporation the funds that are needed to pay off the obligations.

However, as result of such a failure, it is possible that the value of corporation’s share will be

negligible. This outcome will result in the stockholders having lost an amount equal to the

price paid to buy the shares. (Sharpe, Alexander and Bailey, 2000, p. 457).

“Common stock holders are sometimes referred to as a residual owner since he or she

receives what is left the residual after all other claims on the firm’s income and asset have

been satisfied. All the companies issue common stock. Common stockholders are true owners

of business firm. They invest money with the expectation of getting high return. The return

from common stock is usually from the capital gain earned. If they increase in value after

public buy them. That is why price of common shares can be more volatile. They move up

and down due to the factors like economy and company performance”. (Gitman, 1991, p.

573). Most of the investors are wise to invest their saving funds in stocks, with the

expectation of future cash inflow as dividends and maximization of value of their holdings in

the market. Dividends and book value of the firm are linked with the earning capacity of the

firms, which ultimately increase or decrease the market price of shares. So, brief discussions

have been presented in the following paragraphs, on earning per share, dividend per share,

book value per share and market price per share.

xxix
 2.1.2 earning per share. Earning per share is also known as net profit per share. It serves

as an indicator of a company’s profitability. It is a market prospect ratio that measure the

amount of net income earned per share of stock outstanding. The increasing earnings per

share generally results in high market price. It is calculated by dividing the net profit after tax

by number of shares outstanding.

2.1.3 retained earnings. Among the total amount earned by the firm some portion is

distributed to the shareholders as dividend and remaining portion is retained by the firm for

future/ reinvestment. This retained amount by the firm is called retained earnings and shown

in the liabilities side of balance sheet. More the retained earnings more will be the net worth

of the firm. Less the retained earning less will be the net worth.

2.1.4 dividend. The percentage of earning the firm pays in cash or stock to its

shareholders is known as dividend. The dividend, of course, reduces the amount of earnings

retained in the firm and effect the total amount of internal financing. Nothing is more

important than dividends to stockholders. They buy share of firm with the hope of sharing

profits earned by firms. The role motive of stockholders is to receive return on their

investment. Nothing pleases them more than knowing the firm is earning more profit because

more profits mean more dividends coming in future.

Forms of Dividend

a. Cash Dividend

Payments made in cash to stockholders are termed as cash dividend. For which a firm needs

to have enough cash in its bank account. When cash dividend, is declared the cash amount

and reserves account of the firm will be reduced, thus both the total assets and the net worth

of the firm are reduced in case of distribution of cash dividend.

b. Stock Dividend (bonus share)

An issue of bonus share represents a distribution of share in addition to cash dividend to the

existing stockholder. This practice has the effect of increasing the number of outstanding

share of the company, which is distributed proportionately. Thus, a shareholder retains

proportionate ownership of the company. Majority of investors prefer bonus share rather than

cash dividend.

2.1.5 book value per share. Book value per share is a financial measure that represents a

per share assessment of the minimum value of a company’s equity. More specifically, this

value is determined by relating the original value of a firm’s common stock adjusted for any

outflow (dividend and bonus) and inflow (net profit/retained earnings) modifiers to the

number of shares outstanding. With the passage of time, a corporation will generate income,

much of which is paid out to creditors as interest, and to stock holders as dividend. Any

remainder is added to the amount shown as cumulative retained earnings or reserve and

surplus on the corporation’s books. The sum of the cumulative retained earnings and other

entries (such as “common stocks” and “capital contributed more than par value”) under

stockholder’s equity is the book value of the equity. The book value per share is obtained by

dividing the total book value of the equity by the numbers of shares outstanding” (Sharpe,

Alexander and Bailey, 2000, p. 461).

2.1.6 stock price/market price per share (MPS). A share of common stock can be

authorized either with or without par value. Par value is the recorded figure in the corporate

charter. Generally, par values of most stocks are set at low figures with compare to their

market values and the market values per share of common stock is the function of the current

and expected future dividend of the company and the perceived risk of the stock on the part

of investors (Van Horne and Wachowicz, 2000 p. 546).

xxxi
The market price of the share gives the value of shares, and the value of the organization. The

market price of shares is that the price in which the shares are traded or the amount, which is

paid by the buyer to the seller to purchase a stock. The market price of shares varies from one

company to another. Since the common shareholders are the owner of the organizations and

have least priority to claim in liquidation, the share price is highly volatile and very sensitive

to the environmental factors. Therefore, the organization tries to maintain the favourable

environment to maximize the share price in the stock market. On the other hand, the external

environment forces are not within the control of the organization, but such forces highly

affect the market price of shares. Therefore, the firm tries to adjust themselves according to

the changing environmental forces, and such adjustments are intended to maximize the share

price or the value of the firm.

Since the market price of shares is very much sensitive to the environmental forces,

the share price increases if there is favourable environment and vice versa. This increase in

the share price is based on the market mechanism or market forces, i.e. demand and supply. If

the earning and dividend of an organization increases, then the investors have positive

perception towards the organization and they like to buy the shares of the organization, as a

result demand increases, which leads to increase in price; on the other hand, the suppliers like

to hold the shares and supply decreases, and there is gap between demand and supply so the

market price of shares increases. The investors determine the price, they would like to pay for

the shares of an organization and the sellers determine the price, they would like to receive by

selling shares based on their assumptions towards the organization and future expectations.

Such assumptions and expectations vary from individual to individual. Since different person

analyzes the same situation differently with their limited knowledge.

The NEPSE benchmark index is the sum of market price per share multiplied by number

of shares outstanding of all the listed companies. The increase or decrease of an individual
company share price results the change in index. Hence, market price per share is very

important in the study of stock market.

Stock price is the amount of money that one must pay to purchase a stock of the company

from the market. If, Mr. X buys 10 shares of Everest Bank Ltd. At Rs.10000, then the price of

the share is Rs.1000 (i.e.10000/10). Thus, market price per share is the amount paid by a

buyer to buy one stock or the amount received by the seller selling one stock.

2.1.7 par value. When a corporation is first chartered, it’s authorized to issue up to a

stated number of shares of common stock, each of which will often carry a specified par

value. Legally a corporation may be precluded from making payments to common stock

holders if doing so would reduce the balance sheet value of stockholder’s equity below the

amount represented by the par value of outstanding stock. For this reason, the par value is

typically low relative to the price for which the stock is initially sold. Some corporations

issue no-par stock. (Sharpe, Alexander, Bailey, 2000, p. 461).

The initial offering price of share may vary from its par value if stocks are issued on

premium or discount. In common, the par value of the stock is Rs.100 in context of Nepal.

2.1.8 price earning ratio. It is the ratio of market price in comparison to the current

earning per share of the company. It is calculated by dividing the current market price by

earning per share. Lower P/E Ratio indicates lower risk associated with the company share to

invest. In Nepal investor rely very much on this ratio. They want to invest in the company

which P/E Ratio is less than 25.

2.2. Security Markets

Securities market is a component of the wider financial market where securities can be

bought and sold between subjects of the economy, on the basis of demand and supply.

Securities market encompasses equity markets, bond markets and derivative markets where

prices can be determined and both participant professional and non-professionals can meet.

xxxiii
 Securities markets can be split into below two levels. Primary markets, where new

securities are issued and secondary market where existing securities can be bought and sold.

Secondary markets can further be split into organised exchanges, and over-the-counter

market, where individual parties come together and buy or sell securities directly. For

securities holders knowing that a secondary market exists in which their securities may be

sold and converted into cash increases the willingness of people to hold stocks and bonds and

thus increases the ability of firms to issue securities. There are a number of professional

participants of a securities market and these include brokerages, broker-dealers, market

makers, investment managers, speculators as well as those providing the infrastructure, such

as clearing houses and securities depositories.

A securities market is used in an economy to attract new capital, transfer real assets in

financial assets, determine price which will balance demand and supply and provide a means

to invest money both short and long term. Security market exists to bring together buyers and

sellers of securities, and serve as the system to facilitate the exchange of financial assets.

Security market is important constituent of capital market.

Securities market can be distinguished in many ways one of them is primary and

secondary markets. Here the key distinction is whether the securities are being offered for

sale by issuer. Interesting, the primary market itself can be subdivided into seasoned and

unseasoned new issues. A seasoned new issue refers to the offering of an additional amount

of an already existing security; where as an unsecured new issue involves the initial offering

of a security to the public. Unseasoned new equity issues are often referred to as initial public

offerings (IPO’s).Another way of distinguishing between security markets considers the life

span of financial assets. Money markets typically involve financial assets that expire in one

year or less; whereas capital markets typically involve financial assets with life spans of

greater than one year” (Sharpe, Alexander and Bailey, 2000, p. 9).
 Security market provides value and significances to the financial assets. It provides a

systematic and effective way of raising money for enterprises and also provides an

investment opportunity for individual investors and institutional investors. Hence security

market is a system whereby investors can convert their securities into cash quickly.

2.3 Stock Market and Stock Exchanges

Stock market is a collection of market and stock exchanges where the issuing and trading of

equities of publicly held companies, bonds and other sort of securities takes place, either

through formal exchanges or over-the-counter markets. Also known as equity market, the

stock market is one of the most vital components of a free-market economy, as it provides

companies with access to capital in exchange giving investors a slice of ownership a part of

capital market where previously issued securities are traded. Stock market is basically known

as secondary market those in which all transferable securities issued previously by corporate

bodies are traded. Private companies stock is not tradable in the stock market because of the

restrictions on transferability. Only public companies stock is traded in the stock market. In

order to make the share tradable in the stock market the company should have listed its

security in the stock exchange. Only the securities of existing companies are tradable on the

stock exchange irrespective of issuers’ corporate bodies or government. A stock market is a

market for trading publicly held company stock and associated financial instruments. There

are two basic types of stock markets the organized exchanges, and the less formal over- the-

counter markets. Organized securities exchanges are the physical locations where trading of

securities is done under a set of rules and regulations.

The organized security exchanges are tangible physical entitles. Each of the larger

once occupied its own building, has specifically designated members, and has an elected

governing body- its board of governors. Members are said to have “seats” on the exchange,

xxxv
although everybody stands up. These seats, which are bought and sold, give the holder the

right to trade on the exchange (Weston and Brigham, 1987, p. 78).

There are various indexes to analyze the stock behaviour in the world’s capital

market. “Stock market indexes are “pure numbers” used for making the comparison between

index numbers in the same series or other index number. An index is usually a ratio tabulated

from average of different securities. Typically, a time series of index numbers is constructed

from the same base date and base value (usually set as 100 or 10 or1) to make time

differently comparable. Some past year is selected as the base year from which index’s base

value is calculated to impart time perspective to the index (Francis, 1991, p. 183).

2.4 Security Board of Nepal (SEBON)

Security board of Nepal was established on June 7, 1993 under the provision of the Security

Exchange Act, 1983. SEBON is the autonomous apex regulatory body, has been governing

monitoring and supervising the securities market of Nepal. The objective of the board is to

promote and protect the interest of the investors by regulating the issuance, sale and

distribution of securities and purchase, sales or exchange of securities to supervise and

monitor the activities of the stock exchange and other related firms on securities business and

to render contribution on the development of the capital market by making securities

transaction fair, healthy, efficient and responsible. It also assumes the responsibility of

development of securities market in the country, besides the regulatory role.

The governing board of SEBON consists of seven members representing various

government and private sectors. The seven-member board includes a full-time chairman

appointed by government of Nepal for the tenure of four years. To make prospectuses of

issuer companies more informative and reliable, SEBON has formed “Securities Registration

and Issue Approval Committee” with representations from Nepal Rastra Bank and Insurance

Board in this committee as and when required. Dematerialization of stock (DMAT),

Application Supported by Block Amount (ASBA), Semi Automated Trading System, ICRA

Nepal (authority for grading for IPO and FPO) are the recent development of SEBON.

2.5 Nepal Stock Exchange (NEPSE)

The Securities history in Nepal starts when Biratnagar Jute Mill and Nepal Bank Limited

floated their shares in the market. These two companies floated their shares in 1937. After

almost 24 years, the company act was introduced in the country in 1964. The Government

Bond was also issued for the first time in Nepal in the same year. After that, Nepal realized

the need of securities Exchange Center to facilitate and promote growth of capital markets in

the country. Several discussions were made one by one from the Government side as well as

private side to finalize the modality of Exchange Center. In 1973, with the initiation of Nepal

Government and Nepal Rastra Bank, Securities Exchange Center Limited was established

under the company act. At the very beginning time, responsibilities of Securities Exchange

Center were limited to undertake brokering, underwriting, managing public issues, creating

markets for securities and government bonds.

Institutional development of capital market in Nepal started after the establishment of

Securities Exchange Center (SEC). The Industrial Policy of the government also encouraged

the promotion of securities exchange in Nepal. Nepal government under a program initiated

to reform capital market converted Securities Exchange Center (SEC) into Nepal Stock

Exchange (NEPSE) in 1993 as non-profit organization under Securities Exchange Act 1983.

Similarly, in the same year Securities Board of Nepal (SEBON) was also established by

government of Nepal in June 7, 1993 as an apex regulatory body of Securities Markets.

SEBON regulates the market under the Securities Act, 2006. Since the establishment of

SEBON, it has been concentrating its efforts on the legal and statutory frameworks such as

providing advice to Government on matters related with the development of capital markets,

register the securities of public companies, issue necessary securities regulations and

xxxvii
directives, issue license to operate stock exchange etc. NEPSE has been working under the

jurisdiction of the SEBON.

Nepal Stock Exchange (NEPSE) opened its trading floor on 13 th January 1994 after

establishing under securities Exchange Act, 1983. Currently, NEPSE is the sole secondary

market for listed securities of Nepal. It works in the issue and redemption of securities and

other financial instruments and capital events such as payments of income and dividends. The

Board of Directors consists of nine directors in accordance with Securities Exchange Act

1983. Six directors are nominated by Government of Nepal and rest of the directors are from

different institutional investors. The shareholder ownership structure of NEPSE comprises of

Government of Nepal, Nepal Rastra Bank, Nepal Industrial and Development Corporation

and Members. It is the licensed dealer for primary and secondary market. Till now it is the

only stock exchange in Nepal under the regulation of Securities Board on Nepal. All the

broker companies (who has received the certificate of stock trading and become the member

of NEPSE) trade in the trading floor of NEPSE.

Within a short period of time NEPSE index witnessed significant ups and downs. In

July 27, 2016 NEPSE benchmark index made a record with closing index of 1881.45 points,

the highest peak till today. After the 1881.70 index the market started falling and running in a

bearish trend. In February 13, 2017 NEPSE made a lowest point of 1218.86 and since then

the index is revolving in between 1250-1400 points. The all-time high of NEPSE index is

1881.45 in July 27, 2016 and the all-time low is 292 on June 15, 2011.

NEPSE have replaced the open outcry trading system and adopted a fully automated

screen-based trading system (ATS) since 24th August, 2007. Transactions of securities are

conducted by using the internet. NEPSE has increased the trading hours from 11:00 A.M. to

3:00 P.M from Sunday to Thursday, five days in a week. Once the bid and offer price

matches between the buying and selling brokers, transaction is performed. Presently there are
50 registered brokers, 14 remote work stations outside Kathmandu and Pokhara and 208

listed companies trading in NEPSE organized stock exchange. It has been working for

adopting fully automatic system on trading shares. Hence, transactions are conducted on the

open trading floor where price is determined when bid and offer match or as per the demand

and supply of the shares.

2.6 CDS and Clearing Limited

CDS and Clearing Limited is a company established under the company act is a company

promoted by Nepal Stock Exchange Limited (NEPSE) in 2010 to provide centralized

depository, clearing and settlement services in Nepal. The company is inaugurated on 31st

March 2011. The main objective of the company is to act as a central depository for financial

instruments like equity, bonds, and warrants, especially, to handle securities in dematerialized

form. This organization is entrusted with the safekeeping, deposit, and withdrawal of

securities certificates and transfer of ownership/rights of the financial instruments. The

depository functions will be performed by the company under the securities regulations of

Securities Board of Nepal (SEBON).

2.7 Review of Previous Studies

This part of the literature review is devoted to review of major previous studies relating to

stock prices in detail. There are large numbers of studies in foreign and Nepalese context but

only few of them are briefly reviewed below.

Miller and Modigliani (1961), studied “Dividend Policy, Growth and the Valuation of

Shares” has concluded that dividend payout ratio (dividend policy) does not affect the wealth

of the shareholders or on the share price of the firm. It argues that the value of the firm is

determined by the earning power of the firm’s assets or its investment policy, and that the

way the earnings is split between dividends and retained earnings do not matter. However,

this study is based on the assumptions as mentioned below.

xxxix
- The perfect capital markets in which all investors are rational, and information are available

to all at free of costs, instantaneous transaction cost, infinitely divisible securities, and no

investors large enough to affect the market price security.

- An absence of flotation costs on securities by the firm.

- The firm has a fixed investment policy and is not subjected to change.

Walter (1963), “Dividend Policy: It’s Influence on the Value of Enterprise” argues

that dividend policies usually affect the value of the enterprises. The investment policy of a

firm cannot be separated from its dividend policy, which is just the opposite of what Miller

and Modigliani said. The key argument in the support of the relevant proposition of the

model is the relation between the return of firm’s investments or its internal rate (r) and its

cost of capital (k), the stock price will be enhanced by retention and will vary inversely with

dividend payout.

Sharma (2011), examined the relationship between equity share prices and

explanatory variables such as dividend per share, price earning ratio, earning per share, size

in terms of sale, and net worth for the period 1994 to 2009. The result revealed that earning

per share, dividend per share, and book value per share has significant impact on the market

prise of share. Furthermore, results of the study indicated that dividend per share and earnings

per share being the strongest determinants of market prise, so the results of the study supports

liberal dividend policy and suggests companies to pay regular dividends.

Nirmala, Sanju and Ramachandran (2011),demonstrated the determinants of share

prices in the Indian market, used panel data pertaining to three sectors (auto, health care and

public-sector undertakings) over the period of 2000-2009 and employed fully modified

ordinary least squares methods. Their findings indicated that dividend, price earning ratio and

leverage were significant determinants of share prices for all three sectors. Profitability

variable influenced share prices only in the case of auto sector.

 Almumani (2014), identified the quantitative factors that influence share prices for the

listed banks in Amman Stock Exchange over the period 2005-2011. In this study these

variables (dividend per share, earning per share, size, price earning ratio, book value,

dividend payout ratio and market price) were considered and ratio analysis, correlation and a

linear multiple regression models were used to measure the individual as well as combined

effects of explanatory variables on the dependent variables. The empirical results showed that

there was a positive correlation between independent variables (DPS, EPS, size, P/E ratio,

and book value per share) and dependent variable (market price of share). Regression results

showed that EPS, BV, P/E ratio and DPS have significant and positive relationship with

market price of share.

From the review of literature on share price determinants, it can be observed that

earnings per share, price earning ratio, dividend per share is the most important factor among

all. Even though the capital market of Nepal is not well developed, there are various

researches made on it. It is being very infancy; the factor which affect the stock price of large

and well-developed organized stock exchange may varies from that of NEPSE. However,

some of the factors are worldwide common. In this chapter various books, magazines,

journals, research papers, unpublished thesis reports etc. are reviewed, which

determines/affects the stock price in NEPSE.

2.8 Nepalese Context

There are many loopholes in Nepal Stock Exchange Act. Investor feels insecure here. Lack

of corporate governance of insurance companies, lack of regulatory agency for hydropower,

hotels, manufacturing and processing is matter of concern of insecurity for the investors. It

has been more than a year the share of Mega Bank Ltd. is not trading on the floor due to the

merger process with Tourism Development Bank Ltd. It has been five years that Everest

Insurance Company and Prime Life Insurance Company have not called its AGM. The

xli
insurance board of Nepal has directed the insurance companies to submit the annual report

within six months from the fiscal year end date. But in this case the board is silent. Therefore,

the public as well as the institutional buyers is not feeling secure in investing in stock market.

Investment in the capital market now has become very uncertain. The equity investment is

considered riskier than investment in bond preferred stock etc. The secondary market of

Nepal is not performing well. Hence, the NEPSE index is hovering around 1280 to 1400

points since long time. After great slum Nepal stock market in F/Y 2000/2001, dissatisfaction

has increased in the mind of investors. The NEPSE index on 23 Nov 2016 had reached the

pick of 1881, and after that it is continuously on the decline.

Pradhan and Balampaki (2004), on the title of “Fundamentals of Stock Return” have

given some important insight regarding nature of stock return in Nepal. This study deals with

fundamentals of stock returns. It specially examines dividend yield, capital gain yield and

total yield are related to earnings yield, size of the firm, book to market ratio and cash flow

yield. The study is based on pooled, crossed, sectional data of 40 enterprises whose stocks are

listed in Nepal Stock Exchange Ltd. and traded in the stock market. The study reveals that

earning yield and cash flow yield have significant impact on divided yield. Other main

findings of the study are earning yield and cash flow yield have insignificant impact on book

to market value whereas size has negative impact in dividend yield. In the case of earning

yield and cash flow yield, cash flow yield has been found to be more informative than

earning yield.

Shrestha and Subedi (2014), on the title” Determinants of Stock Market Performance

in Nepal” identified that inflation and growth of money supply has positive relationship with

the stock price change. The study reports that Nepalese stock market has been quite

responsive to macroeconomic development, especially money sector development. Similarly,

a loose monetary policy could trigger an asset price bubble in share market, which is mainly
dominated by financial institutions. The major findings of the study were NRB’s policy on

lending against share collateral has been effective in influencing the share market. The result

also revealed that share market is also influenced due to speculation motive of investor, news,

and rumours, so, transparency should be increased in this market by making information

related to listed companies easily accessible. Transparency and communication should, in

fact, should be enhanced by the concerned authorities to clear gossips and rumours in the

market.

Pradhan and Dahal (2015), on the title “Factors Affecting the Share Price of Nepalese

Commercial Banks” identified that the market price per share of the banks is mostly affected

by dividend per share, size of the firm and money supply. Based on data of 14 commercial

banks over the period 2002-2014 concluded that the variables like earning per share, book

value per share and return on assets have very weak effect in determining market price per

share. They suggested a rational investor’s need to consider dividend per share, firm size and

money supply before making investment decision along with signalling and asymmetric

information in context of imperfect stock market like Nepal.

2.9 Review of Master’s Degree Thesis

There are some researches carried out by different researchers in this topic in Nepal. Here

are some of the reviewed thesis, which can help us to understand about their objectives, used

statistical tools and major findings of the study.

Dhamala (2003), studied on “Determinants of Share Price in Nepalese Financial

Market” taking ten public companies i.e. five from commercial banks and five from finance

companies covering relevant data and information from 1996 to 2001. He found in his study

that the Nepalese stock market is not efficient enough to determine MPS in accordance with

the respective financial performance. The market price of the share in Nepal is not indicative

of a company’s financial performance in stock market and the share market is imperfect, it is

xliii
not efficient, and is liable to manipulation. Basically, value of share price is to be determined

by the prospects of the company based on the past financial indicators.

Neupane (2004), conducted a study on “Determinants of Stock Price in Nepal Stock

Exchange” taking 11 sample organizations using various statistical tools like standard

deviation, correlation, regression analysis, t-test, Z-test. He concluded that in NEPSE, DPS,

BPS and EPS individually do not have consistent relationship with the market price of share,

among the listed companies share price. The pricing behaviour varies from one company to

another. But EPS, BPS and DPS, jointly have significant effect in formation of market price

per share. So, there may be other major factors affecting the share price significantly. NEPSE

is in its primary stage, adopting open outcry system for stock trading and stockbrokers lack

professionalism to create investing opportunities in NEPSE. Commercial banking sector has

dominated the overall performance of NEPSE. Manufacturing and processing, trading and

hotel sector have weak performance. So, financial intermediaries are strong, but their ultimate

investment is suffering.

Dhungel (2005), conducted a study on “Stock Price Movement and Financial

Performance of Nepalese Listed Companies”, derive the conclusion as the invisible factors

causes the ups and downs movement of monthly share volume, price and market

capitalization throughout each fiscal year, the fluctuation trends are not in order and there is

no correlation between volume and price stocks. The large stocks have the lower price

earning ratios, large market value to book value ratio and lower ratio of dividend per share to

market price per share, higher and less variable leverage and lower profitability.

Dhakal (2007), his study on “Determinants of Share Price on Nepalese Commercial

Banks” with randomly selected 10 commercial banks and concluded that the MPS of most of

the banks are found to be correlated with other individual financial indicator like BPS, EPS

and DPS insignificantly. This shows that they individually rarely influence share price, but
they have combine effect on it. He also concluded that due to the inadequate knowledge of

share market among Nepalese investors, capital market of Nepal has not been well developed

yet. The reason why commercial banks are only the attractive sectors to invest, in the view of

investors is that they are better managed and controlled, that is why they are in profit and

distribute good rate of dividend.

Acharya (2008), his study on “Determinants of Stock price in Nepalese Commercial

Banks” with randomly selected 10 commercial banks, concluded that Share price are affected

by different kinds of micro and macro variables such as EPS, DPS, information disclosed,

political instability, growth rate according to respondent’s survey. However, interest rate,

retention ratio, cost of equity, market liquidity, change in management do not significantly

affect the share price in NEPSE. The major findings show in the study that the market price

per share has high degree of positive relationship with EPS in all sample banks and largely

depends upon DPS.

2.10 Research Gap

Earlier studies and researches on the stock price movement in the NEPSE are carried out on

the apparent approach by taking the most common indicators in consideration. During the

review of previous thesis, it is found that no researcher has taken the low priced commercial

bank like Sanima Bank stock as a sample for the study, which the researcher has selected as

sample in this research. So, it is believed that this study will fulfill the gap, which had been

made by the earlier researcher. Researcher has taken sample from only the A grade

commercial banks, which also could predict the sensitive stock market moment as well.

Moreover, to analyze the most influencing factor affecting the share price, investor’s view

will provide the most fruitful result. Hence the researcher has taken individual investors as

primary sources of information.

xlv
 Furthermore, the study of financial institutions will give the most applicable

conclusion if conducted by using the financial analysis tools rather than statistical analysis

tools. Most of the above stated studies use technical method and statistical methods like

regression analysis, correlation coefficient, NEPSE trend etc. for analysis. None of the studies

use financial analysis tools for the study, which is most important in the study of financial

institutions. Hence, the researcher has taken the financial analysis tools like P/E ratio,

dividend distribution pattern, to identify the financial health of the sample banks. So, this

study tries to analyze the relationship of EPS, DPS, P/E along with influencing factor on

market price of the stock.

Various quantitative and qualitative factors affect the share price formation. Many

studies documented that dividend and earning per share is one of the most influencing factors

in share price determination. But apart from this there are numerous factor playing a major

role in price formation like information, political situation, unstable government, lack of

farsighted policies and other macro economic factors equally play the vital role in the price

fluctuation and make impact in a decisive role in share price formation which researcher try

to analyze during this study.

 CHAPTER – III

Research Methodology

Research methodology refers to the various steps that are adopted by researchers during the

course, of studying a problem with certain objectives. A systematic research study requires a

proper methodology to achieve the set of objectives. Research methodology is a systematic

method of finding solution of a problem i.e. systematic collection, presentation, analysis,

interpretation and reporting of data and information. This chapter aims to present a basic

framework of the research work. This chapter contains the research design, sample size, data

collection procedure, data processing tools and techniques and variables under study.

3.1 Research Design

In this study, historical, descriptive and explanatory research design is adopted. To determine

the affect of earning, book value, dividend and price earning ratio, historical research design

is adopted along with correlation and regression analysis and to identify the qualitative

factors affecting stock price, the descriptive research design is adopted. Therefore, the main

objective of this study is to examine the interrelation of MPS with EPS, DPS, BVPS and

other financial indicators. Some financial and statistical tools have been applied to examine

facts and descriptive techniques have been used to determine factors determining stock prices

of commercial banks in NEPSE based on five-year data from fiscal year 2012/2013 to

2016/2017.

3.2 Population and Sample

The total variables/observation is simply called population. All companies listed with the

Nepal Stock Exchange are the population, but for the study only the commercial banks listed

and conducting share transactions in the NEPSE are taken as the population of the study. At

present, there are 28 commercial banks but only 27 of them are listed with the NEPSE. Out of

the 27 listed commercial banks following seven commercial banks are randomly selected for

xlvii
the purpose of analysis. In this study, the population size is 27 and the sample size is seven.

Details of sample banks are listed below.

Table 3.1
Detail of Study Sector and Sample Size
Name of sector Total no. of listed commercial banks No. of banks under study
Banking (commercial bank) 27 7

3.3 Sources and Nature of Data

The study is based on secondary data as well as primary data. To show the relationship

between the different variables (share price- earnings, share price-book value, share price-

dividend, share price-price earning ratio) secondary data is used to determine the factors,

which affect the stock price. For the purpose of primary data, a questionnaire was presented

to the 50 respondents from the broker office trading floor. The sources of the secondary data

are collected from different sources of related commercial banks as follows.

- The annual report of the sample banks showing EPS, DPS, MPPS, P/E ratio and BVPS.

-Information relevant to study available in various websites.

-SEBON, NEPSE, financial statistics reports, bulletins publications of different authorities.

The details of variables involved in this study is listed below in the form of table.

Table 3.2
Details of Variables

Variables Short Name Type Unit Calculation

Earning Per Share EPS Independent Rupees Net profit after tax/No. of shares

Dividend per share DPS Independent Rupees Total Dividend/No. of shares

Price earning ratio P/E ratio Independent Times Market price per share/EPS

Book value per share BVPS Independent Rupees Shareholder’s equity/no. of share

Market price per share MPPS Dependent Rupees Total market capitalization/no. of share

3.4 Data Collection Techniques

The research consists of both primary as well as secondary data. Since the nature of these

two types of data is different, the data collection procedure also varies. The relevant

secondary data has been collected from the annual report of the commercial banks available

from their websites like www.nabilbank.com.np, www.everestbank.com.np,

www.sanimabank.com.np et cetera. On the other hand, primary data collected through

scheduled questionnaire.

3.5 Data Processing

Data so obtained have no meaning unless they are arranged and presented in a systematic

way. Further, they need to be simplified for analysis. The relevant data have been inserted in

meaningful tables. Only the data that are relevant to the study have been presented in tabular

form in the understandable way and unnecessary data excluded. It is attempted to draw out

the conclusion from the available data, with the help of various financial as well as statistical

tools. For the calculation of statistical value like mean, standard deviation, coefficient of

variance, correlation etc. the help of computer software excel and SPSS has been used.

3.6 Data Analysis Tools

The primary and secondary data collected from various sources leads to the logical

conclusion, only if the appropriate tools and techniques are adapted for analysis of such data.

The collected data has no meaning data are not analyzed. Various statistical and financial

tools have been used to analyze the data in this study. The financial tools applied are earning

per share (EPS), dividend per share (DPS), market price per share (MPPS), book value per

share (BVPS) and price earning ratio (P/E ratio). The statistical tools applied are

average/arithmetic mean, standard deviation, coefficient of variation and correlation

coefficient. The tools applied have been discussed below.

xlix
 3.6.1 financial tools. Financial tools are used to examine the performance of the bank.

With the help of financial information different variables are calculated and compared to find

out strength and weakness of a bank for investment.

3.6.1.2 earning per share (EPS). Earning per share is the portion of a company’s profit

allocated to each outstanding share of a common stock. Earning per share serves as an

indicator of a company’s profitability. It is a market prospect ratio that measure the amount of

net income earned per share of stock outstanding. The increasing earnings per share generally

results in high market price. It is calculated by dividing the net profit after tax by number of

shares outstanding. Earning per share of the company provides strength to the company share

in the market.

It is calculated as:

EPS= Net profit after tax

No. of share outstanding

3.6.1.3 dividend per share (DPS). Out of the earning per share some amount is distributed

to shareholders and some is retained by the company. The amount distributed from per share

earning to the shareholder is known as dividend per share. The percentage of earning the firm

pays in cash or stock to its shareholders is known as dividend. Nothing is more important

than dividends to stockholders. They buy share of firm with the hope of sharing profits

earned by firms. The role motive of stockholders is to receive return on their investment.

Hence, the company offering high dividend per share is regarded as company caring for

shareholders expectation.

It is calculated as follows:

DPS = Total dividend proposed

No. of ordinary share

3.6.1.4 market price per share. Market price is the price an asset would fetch in the

market place. Market value is also commonly used to refer to market capitalization of a
publicly traded company and is obtained by multiplying the number of its outstanding shares

by the current share price. Market value can fluctuate a great deal over periods of time and is

substantially influenced by the business cycle. Market values plunge during the bear market

and rise during the bull markets. Market price per share is the real value of the company

stock. It is the price that the buyer agrees to pay, and seller agrees to receive. It shows the

actual performance of the company. Many companies try to maintain their stock price by

declaring attractive dividend every fiscal year. It is calculated by dividing total market

capitalization with number of ordinary shares outstanding.

It is calculated as follows:

Market price per share = Market capitalization

No. of shares outstanding

3.6.1.5 price earning ratio (P/E Ratio). It is the most important ratio commonly used by

most of the investor for selecting stock. It is the ratio of market price in comparison to the

current earning per share of the company. P/E ratio is the ratio for valuing a company that

measures its current share price relative to its per-share earnings. It is also sometimes known

as the price multiple or the earnings multiple. The P/E ratio indicates how much amount an

investor can expect to invest in a company to receive one rupee of that company’s earnings. It

is calculated by dividing the current market price by earning per share. Lower the P/E Ratio

indicates lower the risk in the firm to invest. Higher P/E ratio indicates higher risk of the

company’s share. It suggests that whether the share price of the company is overvalued or

undervalued. In Nepal investor rely very much on this ratio. They want to invest in the

company which P/E Ratio is less than 25.

It is calculated as follows:

P/E ratio = Market price per share

Current earning per share

li
 3.6.1.6 book value per share. Book value per share is the stock’s actual value as per the

company record. Book value per share is a financial measure that represents a per share

assessment of the minimum value of a company’s equity. More specifically, this value is

determined by relating the original value of a firm’s common stock adjusted for any outflow

(dividend and bonus) and inflow (retained earnings) modifiers to the number of shares

outstanding. It is also known as net worth per share. It is the result of shareholder’s equity

divided by no. of shares outstanding.

It is calculated as follows:

Book value per share = Total paid up capital + reserve and surplus
No. of shares outstanding

3.6.2 statistical tools. Besides the financial tools, some statistical tools have also been

used in the study. Following statistical tools are used to analyze the relationship between two

variables.

3.6.2.1 arithmetic mean or average. Mean is the value, which represents the group of

values and gives an idea about the concentration of values in the central part of the

distribution. An average gives us a point that mostly representative of the data. It depicts the

characteristics of the whole group. The value of arithmetic mean lies in between the two

extreme observations of the entire data. It is an envoy of the mass homogeneous data. The

value of the AM is obtained by adding together all the items and by dividing this total by the

number of items.

Mathematically,

X
X 
N
Where,
x = Arithmetic Mean
∑X = Sum of all the values of the variable X
n = Number of observations

3.6.1.2 standard deviation. The standard Deviation (σ) measures the absolute dispersion.

The greater the standard deviation, greater will be magnitude of the deviations of the values

from their mean. A small standard deviation means a high degree of uniformity of the

observations as well as homogeneity of a series and vice versa. It is calculated as follows:

It is calculated as follows:

( X X) 2
S.D.=
N
Where,
σ = Standard Deviation

X = Number in X-series

x = Mean

N = Number of observations in a sample.

3.6.1.3 coefficient of variation. Coefficient of Variation (CV) is a relative measure of risk.

It is the standard deviation divided by the expected return, which measures risk per unit of

return. To compare the variability between two or more series, CV is more appropriate

statistical tool. Mathematically,

S
CV = × 100
❑

3.6.1.4 correlation coefficient (r). Correlation is defined as the relationship between the

one dependent variable and one independent variable or factor. In other words, correlation is

relationship between two or more variables. Thus, correlation is a statistical tool, with the

help of which, we can determine whether or not two or more variables are correlated and if

they are correlated then what is the degree and direction of correlation. If the value of the

variable is directly proportional, than the correlation is said to be positive. On the other hand,

if the values of the variables are inversely proportional, the correlation is said to be negative

liii
but the correlation coefficient always remains within the limit of +1 to -1. By Karl Pearson,

the simple correlation coefficient (between two variables, say X and Y) is given by,

N ∑ XY −(∑ X )(∑Y )
Correlation (rxy) =
√ N ∑ X 2− ( ∑ X ) 2 √ N ∑Y 2−( ∑ Y ) 2
Where, rxy is the correlation between two variables X and Y,‘r’ always lies in between +1

and -1

When ‘r’ = +1, there is perfect positive correlation.

When, ‘r’ = -1, there is perfect negative correlation.

When ‘r’ = 0, there is no correlation.

3.6.1.4 coefficient of determination. The coefficient of determination is the way to

measure the contribution of independent variables in predicting the dependent variables. It is

more appropriate while verifying the results than the correlation coefficient and computed by

square of the correlation coefficient as mentioned above. The coefficient of determination is

given by the square of the correlation coefficient, i.e. R2= r × r

So, the coefficient of determination = Squarer of correlation = (r)2

3.6.1.5 regression analysis. Regression analysis is the statistical tool, with the help of

which we can predict the unknown value of one variable from known value of any other

variable. The variable, whose value is given, is called independent variable and the variable

whose value is to be predicted is called dependent variable. It is used to determine that

whether the dependent variable is influenced by the given independent variable or not.
 Chapter – IV

Data Presentation and Analysis

This chapter is the main body part of this study. The primary and secondary data are collected

in unprocessed form. So, in this chapter, such unprocessed data are presented in systematic

formats and analyzed using different financial as well as statistical tools and techniques. The

secondary as well as primary data, collected from different sources, are presented and

analyzed separately using both qualitative and quantitative measure. In this course of

analysis, data gathered from various sources have been inserted in the tabular form.

4.1 Financial Analysis

The financial tools are used to examine the strength and weakness of the bank in terms of

financial health or financial performance. The financial tools used for data analysis are

presented below:

4.1.1 earning per share. Earning per share is the portion of a company’s profit allocated

to each outstanding share of a common stock. Earning per share serves as an indicator of a

company’s profitability. The table number 4.1 shows the EPS of all sample banks. Sample

banks have been denoted as the trading symbol in NEPSE. It is calculated as:

EPS= Net profit after tax

No. of share outstanding

Table 4.1
EPS of Sample Banks (in Rupees)
Fiscal Year EBL HBL NABIL NIBL SBI SBL SANIMA
2012/013 91.88 39.94 91.05 46.2 32.75 29.8 15.13
2013/014 86.04 34.19 83.68 40.7 34.83 38.63 19.28
2014/015 78.04 33.1 57.24 30.9 34.84 37.77 24.47
2015/016 65.97 33.37 59.27 29.3 34.59 41.53 32.55
2016/017 44.32 43.03 58.54 34.2 30.61 20.77 26.31
Total 366.25 183.63 349.78 181.3 167.62 168.5 117.74
Mean 73.25 36.726 69.956 36.26 33.524 33.7 23.548
S.D. 18.8650 4.4976 16.120 7.0699 1.8483 8.4347 6.6819
C.V. 0.2575 0.1225 8
0.2304 0.1950 0.0551 0.2503 0.2838
(Source: Appendix A)

lv
Table 4.1 shows EPS of the sample banks. The mean EPS of EBL is high among all followed

by NABIL, HBL, NIBL, SBL, SBI and SANIMA is the lowest. The SBI bank seems to be

more consistent among all in terms of EPS. Most of the banks EPS is declining in the year

2016/017 but NABIL and NIBL are able to maintain the same EPS. In the fiscal year

2016/017 EPS of EBL and SBL is decreased by more than twenty rupees. The higher

fluctuation of EPS in EBL and SBL suggest inconsistent performance of the bank.

4.1.2 dividend per share. Dividend per share is the sum of declared dividends issued by a

company for every ordinary share outstanding. The figure is calculated by dividing the total

dividends paid by a business; including interim dividends for a period of time by number of

outstanding ordinary shares issued. Investors very much rely on this ratio for investing. They

prefer the company that distribute attractive dividends. Table number 4.2 shows the DPS of

all sample banks. It is calculated as follows:

DPS = Total dividend proposed

No. of ordinary share

Table 4.2
Dividend per Share of Sample Banks (in Rupees)
Fiscal Year EBL HBL NABIL NIBL SBI SBL SANIMA
2012/013 60.53 28.42 65 35 20 22.11 10.53
2013/014 62 15 65 40 22.07 23.16 15.79
2014/015 36.57 21.05 36.84 34.7 28.42 21.05 21.05
2015/016 70 42.11 45 41 29.53 48.75 15.79
2016/017 33 31.58 48 40 16.34 14 16
Total 262.1 138.16 259.84 190.7 116.36 129.07 79.16
Mean 52.42 27.632 51.968 38.14 23.272 25.814 15.832
S.D. 16.5451 10.353 12.578 3.033 5.610 13.314 3.7206
C.V. 0.3156 0.3747 0.2420 0.0795 0.2410 0.5158 0.2350
(Source: Appendix A)

Table 4.2 shows the Mean DPS, standard deviation and coefficient of variation of all sample

banks. All the sample banks have distributed attractive dividend in all five years of the study

as per their earnings. The average DPS of EBL and NABIL are high among all. More than
50% of the earning is distributed to the investors. But in terms of consistency NIBL has made

the constant dividend distribution pattern. Although, the average dividend per share of EBL

and NABIL is high among all, they seem unattractive due to high fluctuation in distribution

of dividend to the investors. In the fiscal year 2016/017 SBL and SBI dividend per share have

been decreased by more than 50%, it suggests the inconsistency of the banks. The CV of SBL

is 51.58% which shows the high fluctuation in the dividend distribution pattern. The SD of

SANIMA is 3.72 which show the consistency of the bank in terms of dividend payment.

4.1.3 market price per share. Market price is the price an asset would fetch in the market

place. Market value is also commonly used to refer to market capitalization of a publicly

traded company and is obtained by multiplying the number of its outstanding shares by the

current share price. Market value can fluctuate a great deal over periods of time and is

substantially influenced by the business cycle. Market values plunge during the bear market

and rise during the bull markets. The market price per share of the sample banks is analyzed

in the table number 4.3.

Table 4.3
Market Price per Share of Sample Banks (In Rupees)
Fiscal Year EBL HBL NABIL NIBL SBI SBL SANIMA
2012/013 1591 653 1815 784 850 300 260
2013/014 2631 700 2535 960 1280 810 638
2014/015 2120 941 1910 704 887 678 555
2015/016 3385 813 2344 1040 1875 869 750
2016/017 1353 1500 1523 770 925 485 431
Total 11080 4607 10127 4258 5817 3142 2634
Mean 2216 921.4 2025.4 851.6 1163.4 628.4 526.8
S.D. 819.0537 342.041 409.631 141.650 433.423 235.445 189.301
C.V. 0.3696 0.3712 0.2022 0.1663 0.3725 0.3747 0.3593
(Source: Appendix A)

The mean market price per share of EBL is Rs.2216, HBL is Rs.921.40, NABIL is

Rs.2025.40, NIBL is Rs.851.60, SBI is Rs.1163.40, SBL is Rs.628.40 and SANIMA is

Rs.526.80. EBL has the most fluctuation MPPS with a standard deviation is 819.05 and CV

lvii
of 36.96%. NIBL and SANIMA has less fluctuating market price per share. The CV of

NABIL and NIBL is less than 21% whereas; other five banks have more than 35%. It

suggests that NABIL and NIBL MPPS are consistent among all banks.

4.1.4 price earning ratio. P/E ratio is the ratio for valuing a company that measures its

current share price relative to its per-share earnings. It is also sometimes known as the price

multiple or the earnings multiple. In essence, the P/E ratio indicates how much amount an

investor can expect to invest in a company in order to receive one rupee of that company’s

earnings.

P/E ratio = MPS

EPS

Table 4.4
Price Earning Ratio (P/E ratio) of Sample Banks (In times)
Fiscal Year EBL HBL NABIL NIBL SBI SBL SANIMA
2012/013 17.32 16.35 19.93 16.97 25.95 10.07 17.18
2013/014 30.58 20.47 30.29 23.59 36.75 20.97 33.09
2014/015 27.17 28.43 33.27 22.78 25.46 17.95 22.68
2015/016 51.31 24.36 39.55 35.50 54.21 20.93 23.04
2016/017 30.52 34.86 26.07 22.51 30.22 23.36 16.38
Total 156.89 124.47 149.16 121.35 172.59 93.26 112.37
Mean 31.37 24.89 29.83 24.26 34.51 18.65 22.47
S.D. 12.39 7.153 7.741 6.802 11.901 5.167 6.674
C.V. 0.3949 0.2873 0.2484 0.2803 0.3448 0.2770 0.2970
(Source: Appendix A)

The average P/E ratio of SBL is 18.65 lowest among all the sampled banks, which indicates

the low risk associated with the bank’s common stock investment. SANIMA, HBL, NIBL

also seems to be undervalued with a P/E ratio of less than 25 times. The P/E ratio of SBI is

highest among all, which indicates the high risk involved to the investor. EBL and NABIL

have the P/E ratio of 31.37 and 29.83 indicates the stocks market price is still higher than

other banks. The CV of EBL is highest 39.49% which indicates the higher fluctuation of the

bank’s earning multiple ratios. Whereas CV of NABIL is lowest among all it suggests there is

less fluctuation of the bank in terms of earning multiplier.

 4.1.5 book value per share. Book value per share is the ratio that divides common equity

value by number of share outstanding. The book value of equity per share is one factor that

investors can use to determine whether a stock price is undervalued. If a business can

increase its BVPS, investors may view the stock as more valuable, and the stock price

increases.

BVPS = Value of common equity

No. of shares outstanding
Table 4.5
Book Value per Share of Sample Banks (In Rupees)
Fiscal Year EBL HBL NABIL NIBL SBI SBL SANIMA
2012/013 291.53 193 275 169 120.24 154.53 120.24
2013/014 296.3 192.02 251 166 127.77 165.44 127.77
2014/015 335.6 209.92 259 155 134.52 184.43 134.52
2015/016 320.06 208.81 244 187 120.96 206.54 120.96
2016/017 253.28 196.12 228 176 131.36 130.28 131.36
Total 1496.77 999.87 1257 853 634.85 841.22 634.85
Mean 299.354 199.974 251.4 170.6 126.97 168.244 126.97
S.D. 31.3682 8.7143 17.4442 11.8870 6.2914 29.0076 6.2914
C.V. 0.1048 0.0436 0.0694 0.0697 0.0496 0.1724 0.0496
(Source: Appendix A)

The average book value of EBL is Rs.299.35 highest among all. In fiscal year 2015/016 and

2016/017 BVPS of EBL is decreasing. The average book value per share of NABIL is

Rs.251.40 with a standard deviation of 17.44 and coefficient of variation is 6.94 which show

the consistent performance of the bank. The mean BVPS of HBL is Rs.199.97 with a

standard deviation of 8.71 and coefficient of variation of 4.36% it indicates the less volatility

in BVPS during five fiscal years. The average BVPS of NIBL is Rs.170.60 with a standard

deviation of 11.88 and coefficient of variation of 6.97% indicates the stability of bank’s

BVPS. The average BVPS of SBL is Rs.168.24 with a standard deviation of 29.00 and

coefficient of variation is 17.24% which indicates high fluctuation of the company’s book

value per share. The average BVPS of SANIMA is Rs.126.97 with a standard deviation of

lix
6.29 and coefficient of variation of 4.96% which indicates the company’s stability in

maintaining the same book value per share in the five-year period.

4.2 Statistical Analysis

The table given below shows the financial summary of the seven commercial banks based on

past five years, their mean, standard deviation and coefficient of variation of individual bank

as well as overall bank. The yearly EPS, DPS, BVPS and MPS of individual bank are

presented in the appendix section.

Table 4.6
Mean, S.D. & C.V. of MPS, EPS, DPS and BVPS
Bank Tools MPS EPS DPS BVPS
EBL Mean 2216 73.25 52.42 299.35
S.D. 819.05 18.86 16.54 31.36
C.V 36.96 25.75 31.56 10.48
HBL Mean 921.40 36.72 27.63 199.97
S.D. 342.04 4.49 10.35 8.71
C.V. 37.12 12.25 37.47 4.36
NABIL Mean 2025.40 69.95 51.96 251.40
S.D. 409.63 16.12 12.57 17.44
C.V. 20.22 23.04 24.20 6.94
NIBL Mean 851.60 38.26 38.14 170.60
S.D. 141.65 7.07 3.033 11.88
C.V 16.63 19.50 7.95 6.97
SBI Mean 1163.40 33.52 23.27 169.07
S.D. 433.42 1.84 5.610 13.67
C.V 37.25 55.51 24.10 8.09
SBL Mean 628.40 33.70 25.81 168.24
S.D. 235.44 8.4347 13.31 29.08
C.V. 37.47 25.03 17.24 17.24
SANIMA Mean 526.80 23.54 15.83 126.97
S.D. 189.30 6.68 3.7206 6.29
C.V. 35.93 28.38 23.50 4.96
Overall Mean 1190.42 44.13 33.58 197.94
S.D. 367.72 9.07 9.30 16.92
C.V. 30.88 20.55 27.70 8.55
(Source: Appendix A)
During the study period, the mean MPS of EBL is Rs.2216 that means average MPS of EBL

is Rs.2216. The Standard Deviation is 819.05 and the CV is 36.96% which indicates that

there is high fluctuation in MPS of EBL. The bank distributed its profit to the shareholders as

dividend for all five years of the study period. However, The EPS of the bank is in decreasing

trend but in average EPS earned by EBL during the five years period is Rs.73.25 which is far

better than the industry average. The standard deviation of EPS is 18.86 and the CV of EPS is

25.75% which shows that there is no high risk involved in the earning capacity of EBL.

The average DPS of the bank is Rs.52.42 with the standard deviation of 16.54 and CV

of 31.56% which indicates that there is less fluctuation in DPS during the study period. The

average BVPS is Rs.299.35 with standard deviation of 31.36. The CV is 10.48% which

shows that there is less fluctuation in book value per share of the bank.

EBL is distributing its dividend each year over the study period. EBL BVPS and EPS

is high among all hence the MPS of the company is also high. It suggests that there is positive

relation between EPS, DPS, BVPS and MVPS. The industry average of CV of MPS, EPS,

DPS and BVPS are 59.13%, 55.80%, 52.31% and 59.13% respectively. This shows that all

the financial indicators of EBL have low degree of CV than that of industry average. It means

they are less volatile than other banks, which is fact show the more consistent in Bank’s

financial performance.

Under the study of HBL, the average MPS is Rs.921.40. The standard deviation is

342.04 and the coefficient of variation is 37.12. It indicated that there is high fluctuation in

the market price of share, hence involve of risk for the shareholders and investors of this

bank. The average EPS earned by the bank during the study period is Rs.36.72. The standard

deviation is 4.49 and coefficient of variation is 12.25%, which indicates there is no risk

involved in the earning capacity of HBL. The average DPS is Rs.27.63 with a standard

deviation of 10.35 and coefficient of variation is 37.47%, which indicates there is medium

lxi
fluctuation in the DPS of HBL during the study period. The average BVPS is Rs.199.97 with

a standard deviation of 8.71 and coefficient of variation is 4.36%. It indicates that there is less

fluctuation in BVPS of the bank during the study period.

Under the study of NABIL, the mean MPS during analysis period is 2025.40 with a

standard deviation of 409.63 and coefficient of variance of 20.22. It indicates that there is low

risk involved in market price of share for the investors of this bank. The average EPS earned

by this bank during the study period is Rs.69.95. The standard deviation of the EPS is 16.12

with a coefficient of variance of 23.04%. It indicates that there is little risk involved in the

earning capacity of NABIL. The average DPS is Rs.51.96 with a standard deviation of 12.57

and coefficient of variance is 24.20%. It indicates that is moderate fluctuation in DPS of

NABIL during the study period. The average BVPS is Rs.251.40 with a standard deviation of

17.44 and coefficient of variance of 6.94%. It indicates that there is less fluctuation in BVPS

of NABIL during the study period.

Under the study of NIBL the mean MPS of analysis period is Rs.851.60. The standard

deviation is 141.63 and the coefficient of variance is 16.63%, it indicates there is very low

risk associated with market price per share. The average EPS earned by this bank during the

study period is Rs38.26. The standard deviation is 7.07 and coefficient of variance is 19.50%.

The 19.50% CV indicates that there is low risk in earning capacity of NIBL. The average

DPS of the bank is Rs.38.14. The standard deviation is 3.03 and coefficient of variance is

7.95%. It suggests that there is no risk for the investor to invest in NIBL share in terms of

dividend. The average BVPS is Rs.170.60. The standard deviation is 11.88 and coefficient of

variance is 6.97%. It indicates that there is no fluctuation in the BVPS of the bank during the

study period.

Under the study of SBI the average MPS is Rs.1163.40. Standard deviation is 433.42

and coefficient of variance is 37.34%, it indicates that there is moderate fluctuation in the
MPS of the bank. The average EPS of the bank is Rs.33.52. Standard deviation is 1.84 and

coefficient of variance is 55.51% suggests that there is high fluctuation in earning capacity of

the bank. The average DPS of the bank is Rs.23.27. The standard deviation is 56.10 and

coefficient of variance is 24.10%. It suggests that there is moderate risk for the investors to

invest in SBI. The average BVPS of the bank is R169.07. The standard deviation is 13.67 and

coefficient of variance is 8.09%. It indicates that the bank BVPS of the bank is consistent

among all the variables studied.

Under the study of SBL the average MPS is 628.40. The standard deviation is 235.44

and the coefficient of variance is 37.47%. The CV of MPS indicates that there is moderate

level of fluctuation in the MPS of the bank. The average EPS earned by the bank during the

five year is Rs.33.70, standard deviation is 8.43 and coefficient of variance is 25.03%. It

indicates that is moderate level of risk in the earning capacity of the bank. The average DPS

of the bank is 25.81. The standard deviation is 13.31 and coefficient of variance is 17.34%. It

indicates that there is less fluctuation in the distribution of dividend to the shareholders. The

average BVPS of the bank during the study period is Rs.168.24 with a standard deviation of

29.08 and coefficient of variance is 17.24%. The CV of 17.24% of BVPS indicates there is

less fluctuation of the bank in terms of book value per share.

Under the study of Sanima Bank Limited MPS is highly fluctuating with a CV of

35.93%. The investors are willing to pay Rs.526.80 per share. The average EPS of the bank is

Rs.23.54 with a standard deviation of 6.68 and coefficient of variance of 28.38%. It indicates

that there is medium fluctuation in the earning capacity of the bank. The average DPS is

15.83 with a standard deviation of 3.72 and a coefficient of variance is 23.50%. It indicates

that there is less fluctuation in dividend payment of the bank. The average BVPS of the bank

is Rs.126.97. The standard deviation of the BVPS is 6.29 and coefficient of variance is

4.96%. It indicates the BVPS of Sanima is consistent among all the sampled banks.

lxiii
 Thus, the above analysis shows EBL has the highest MPS among the entire sampled

bank with Rs.2216 and lowest MPS is 516.80 of SANIMA. The CV of MPS shows that

NIBL and NABIL is most safe bank for the investor having CV of less than industrial

average The CV of MPS in SBL is high among the sampled banks, which indicates that there

is high risk involved in market price of share for the investors and shareholders of this bank.

The CV of MPS in NIBL is low which indicates that there is low risk involved in market

price of share for the investors and shareholders of this bank.

The CV of EPS in SBI is the highest, which mean that SBI’s common stocks are

riskier as compared to other banks. The CV of HBL is lower comparing with others and it is

less risky among all.

The CV of DPS of HBL is the highest and NIBL has the lowest. The SBI has also the

high coefficient of variation among the sampled banks. The CV of HBL and SBI indicates

that both banks common stocks are riskier as compared to other sampled banks. The least CV

of NIBL indicates that NIBL has the highest consistency in paying dividend.

The SBL has the highest and HBL has the lowest CV of BVPS respectively. The CV

of SBL shows that there is high fluctuation in BVPS and CV of HBL shows lower fluctuation

among the sampled banks.

4.3 Relationship between EPS, DPS and BPS to MPS

The relationship of Earning per share, dividend per share, and book value per share to market

value per share is determined in this section. For the analytical purpose, the Market Price per

Share (MPS) is assumed to be influenced with the volatility occurred in EPS, DPS and

BVPS. Hence, MPS is taken as dependent variable whereas EPS, DPS, and BPS are taken as

independent variable. The correlation analysis is performed to determine the relationship of

EPS, DPS and BPS with MPS. To determine the effect of DPS, EPS and BPS on MPS,

simple correlation as well as their coefficient of determination are calculated. To determine

the magnitude of the effects of the independent variable to the dependent variable, simple

regression analysis is performed.

4.3.1 correlation analysis. The correlation analysis overall data is done to find out the

relationship of different variables with MPS.

Table 4.7
Relationship of MPS with EPS, DPS, BVPS and P/E Ratio
Variable Correlation (r) Coefficient of Determination (r2) Significant/Insignificant
MPS & EPS 0.9693 0.9395 Significant (0.01 level)
MPS & DPS 0.8884 0.7892 Significant (0.01 level)
MPS & BVPS 0.9411 0.8856 Significant (0.01 level)
MPS & P/E Ratio 0.7104 0.5046 Significant (0.01 level)
(Source: Appendix B)

Table 4.7 shows the relation of MPS with EPS, DPS, BVPS and P/E ratio. It shows that MPS

is positively correlated with EPS, DPS, BVPS and P/E ratio. It means rise in these indicators

results the rise in MPS.

The correlation between MPS and EPS is 0.9693. It shows that MPS is significantly

positively correlated with EPS at 0.01 level of significance (2- tailed). It indicates that when

EPS increases MPS also increases and vice–versa. The coefficient of determination is 0.9395,

which indicates that nearly 93% of the total change in MPS is due to the effect of EPS and

rest 7% change in MPS is due to other factors. The correlation between MPS and DPS is

0.8884. It reveals that MPS is significantly highly positively correlated with DPS at 0.01

level of significance (2-tailed). It indicates that when DPS increases MPS also increases and

vice versa. The coefficient of determination 0.7892 explains that nearly 78% of the total

change in MPS is due to the effect of DPS and remaining 22% change in MPS is due to other

factors. The correlation of MPS with BVPS is 0.9411. Correlation between MPS and BVPS

shows that there is also high degree of positive relationship. The coefficient of determination

between MPS and BVPS is 0.8856that means nearly 88% variation in MPS is explained by

variation in BVPS. Rest 12% is explained by other factors. The correlation of MPS with P/E

ratio is 0.7104 it suggests that there is positive correlation between MPS and P/E ratio. The

lxv
coefficient of determination between MPS and P/E ratio is 0.5046 it suggests that about 50%

change in MPS is due to change in BVPS and the rest 50% change is MPS is due to the effect

of other factors. The correlations of individual factors with MPS have very high degree of

association with MPS. We cannot conclude that any of single factors play more vital role to

fix the price of MPS. All the factors have almost equal significance in the price determination

of share.

4.3.2 Regression analysis. The regression analysis is carried out to determine whether the

dependent variable is influenced by the given independent variables or not.

4.3.2.1 simple regression analysis.

1. MPS on EPS.

Where, MPS is dependent and EPS is independent.

Table 4.8
Regression Coefficient
MPS = a + b EPS
Variable Regression Constant (a) Regression Coefficient (b) R2
EBL 2244.50 0.379 0.009
HBL -1480.85 39.50 0.286
NABIL -1856.50 56.05 0.987
NIBL -1234.75 58.07 0.993
SBI -756.50 61.56 0.984
SBL -1855.74 168.65 0.924
SANIMA -1285.76 124.40 0.944
(Source: Appendix C a)

Table 4.8 shows the simple regression analysis between MPS and EPS of selected banks. The

correlation of MPS and EPS of all the banks are positive. The regression of EBL, HBL,

NABIL, NIBL, SBI, SBL and SANIMA are 0.379, 39.50, 56.05, 58.07, 61.56, 168.65 and

124.40 respectively. The r2 of EBL is lowest among other banks. It indicates there is no

variation in MPS due to change in EPS. The value is highest in NIBL which indicates that

99.30% variation in MPS is explained due to change in EPS of the bank. Similarly, 28.6%,

98.7%, 98.4%, 92.4% and 94.4% variation in MPS is explained due to change in EPS of
HBL, NABIL, SBI, SBL and SANIMA respectively. It can be concluded that the MPS of the

entire bank except EBL and HBL is highly affected by EPS.

The value of constant (a) is 2244.50, -1480.85, -1856.50, -1234.75, -756.50, -1855.74,

and -1285.76 of EBL, HBL, NABIL, NIBL, SBI, SBL and SANIMA respectively. The value

of constant of EBL is positive which shows that MPS of this bank is highly affected by other

factor besides the EPS of the bank. But in contrary, negative constant of HBL, NABIL,

NIBL, SBI, SBL and SANIMA shows that the MPS of respective banks deeply depends on

the EPS or earning capacity of the stocks of the respective banks.

II. MPS on DPS.

Where, MPS is dependent variable and DPS is independent variable.

Table 4.9
Regression Coefficient MPS = a + b
Variable Regression Constant (a) Regression Coefficient (b) R2
EBL -9850.76 112.40 0.399
HBL -2112.15 76.62 0.766
NABIL 746.39 67.96 0.587
NIBL 544.50 57.62 0.753
SBI 432.40 56.44 0.574
SBL 334.50 33.70 0.454
SANIMA 275.06 29.40 0.344
(Source: Appendix C b)

Table 4.9 shows the simple regression MPS on DPS of selected commercial banks. The

correlations of all the banks are positive and regression coefficient of EBL, HBL, NABIL,

NIBL, SBI, SBL and SANIMA are 0.399, 0.766, 0.587, 0.753, 0.574, 0.454, and 0.344

respectively. It indicates that holding other variable constant one-rupee increases in DPS

leads to an average of about Rs.112.40, 76.62, 67.96, 57.62, 56.44, 33.70 and 29.40 increases

in stock prices of EBL, HBL, NABIL, NIBL, SBI, SBL and SANIMA respectively.

The regression constant (a) of all the selected banks except EBL and HBL are

negative. The regression constant of NABIL, NIBL, SBI, SBL and SANIMA are 746.39,

544.50, 432.40, 334.40, 275.06 respectively, it shows that MPS of this entire bank are highly

lxvii
affected by other factors besides DPS. The regression constant of EBL and NABIL are

negative, which show that MPS of these banks are deeply related with the DPS.

4.4 Primary Data Analysis and Presentation

Another measure applied to gather information relevant to the topic is questionnaire method.

For collecting primary data, a questionnaire having a set of questions were prepared and

presented to 50 respondents. The respondents were selected randomly from the group of

personalities especially from the share investor found in broker’s office in Dharan, Itahari and

Biratnagar and college students. The questions contained variety in types. The questions from

1 to 13 were of multiple choice type in which the respondent was asked to choose the best

alternative from the list. Besides this, two free analysis questions regarding the recent stock

market problem and development of stock market was presented to the respondents and their

views is taken.

4.4.1 classification of respondents. A total of 50 respondents were surveyed randomly

from trading floor to conclude the factor affecting the share price of Nepalese Commercials

Banks. Among these, 38 respondents were active investors of share investment, 12 were

potential investors who are willing or invest in share but have not invested yet. Likewise, the

respondents can be classified in terms of their age, gender and academic qualification as

given in the table 4.10.

Table 4.10
Profile and Classification of Respondents
S.N. Basis of Classification No. of Percentage
Respondents
1 Occupation
Active Investor 38 74%
Potential Investor 12 16%
Total 50 100%
2 Age
Below 25 8 16%
25 to 40 28 56%
Above 14 28%
Total 50 100%
 3 Sex
Male 44 88%
Female 6 12%
Total 50 100%
4 Academic Qualification
Under SLC 8 16%
Intermediate 12 24%
Bachelor 22 44%
Master 8 16%
Total 50 100%
(Source: Appendix E)

As given in the table 4.10, 88% of the respondents were male and 12% were female.

Similarly, 16% of the respondents were from the age group below 25 years, 56% were

between 25 to 40 years and 28% were above 40 years. In terms of qualification 16% of the

respondents were under SLC level, 24% were Intermediate level, 44% were Bachelor level

and the rest 16% were from master’s level qualification. Among the total respondents 74%

were actively trading investor whereas 16% were potential investor. The questionnaire and

the response are given below.

4.4.2 reason of investor attraction in share of commercial banks. Recent study shows

that the majority of investors are attracted towards commercial banks stock. So, to know the

reason of investing in commercial banks share was as a next question. The responses were

obtained as presented in Table no. 4.11

Table 4.11

S.N. Responses No. of Percentage

Respondents
1 Risk Free Sector 5 10%
(Source:
2 Well Managed 8 16%
3 Continuous Dividend 27 54%
Field
4 No alternative available 10 20%
Total 50 100%
Survey

with Questionnaire)

lxix
The table 4.11 shows the number of respondents and the percentage relating the investor’s

attraction in commercial banks share. Majority of people (54%) choose the commercial bank

because of continuous dividend distribution by the sector.20% of them choose commercial

bank because there are no other alternative available in the market. 16% of them are attracted

to commercial bank due to well management and 10% attraction is due to the low level of

risk associated with it.

4.4.3 publication of financial reports changes a company’s share price. The second

question asked to the respondents that before and after publication of financial reports

changes a company’s share price. Table no. 4.12 shows the result of the responses.

Table 4.12

After Publication of Financial Reports Changes a Company’s Share Price

S.N. Responses No. of Percentage

Respondents
1 Yes 40 80%
2 No 7 14%
3 Don’t know 3 6%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.12 shows the number of respondents and their percentage relating the changes a

company’s share price due to publication of financial reports by the company. Majority of

respondents i.e. 80% said yes to the statement, which means a company’s share price is

changed after publication of financial reports.

4.4.4 role of EPS in the determination of share price. The next question asked to the

respondents that earning per share of a company’s affect the share price. Table no. 4.13

shows the result of the responses.

Table 4.13
Higher EPS Indicates Higher Share Price
S.N. Responses No. of Percentage
Respondents
1 Yes 40 80%
 2 No 8 16%
3 Maybe 2 4%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.13 shows the number of respondents and their percentage relating the changes a

company’s share price due to higher earning per share. Majority of respondents i.e. 80% said

yes to the statement, that means a company’s share price is changed due to the earning per

share.

4.4.5 role of dividend in the determination of share price. The next question to the

respondents was whether dividend per share of the company affects the share price or not.

Table no. 4.14 shows the result of the responses.

Table 4.14
Higher the Dividend Higher the Market Price of the Share
S.N. Responses No. of Percentage
Respondents
1 Yes 42 84%
2 No 6 12%
3 Maybe 2 4%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.14 shows the number of respondents and their percentage relating the changes a

company’s share price due to higher dividend per share. Majority of respondents i.e. 84%

said yes to the statement, 12% of them said no and only 4% said don’t know. It means that

the company’s share price is rises due to rise in dividend payout ratio.

4.4.6 role of book value per share in the determination of share price. The next

question to the respondents was whether the book value per share of the company affects the

share price or not. Table no. 4.15 shows the result of the responses.

Table 4.15
Higher the Book Value Per Share Higher the Market Price
S.N. Responses No. of Percentage
Respondents
1 Yes 34 68%

lxxi
 2 No 12 24%
3 Don’t know 4 8%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.15 shows the number of respondents and their percentage relating the changes a

company’s share price due to the book value of share. Majority of respondents i.e. 68% said

yes to the statement, 12% of them said no and only 4% said don’t know. It means that higher

the book value per share higher the share price of the company.

4.4.7 role of p/e ratio in share selection. The next question to the respondents was

whether they select the company to invest that have lower P/E ratio. Table no. 4.16 shows the

result of the responses.

Table 4.16
Lower the P/E Ratio Better the Company
S.N. Responses No. of Percentage
Respondents
1 Yes 30 60%
2 No 20 40%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.16 shows the number of respondents and their percentage of consideration on P/E

ratio investing. Majority of respondents i.e. 60% said rely on P/E ratio investing, and 40% of

them don’t look the P/E ratio of the company while investing in share.

4.4.8 public awareness about equity investment. The next question to the respondents

was whether the Nepalese investors are aware about the share market investment. Table no.

4.17 shows the result of the responses.

Table 4.17
Investor Awareness about Share Investment
S.N. Responses No. of Percentage
Respondents
1 Yes 22 44%
2 No 18 36%
3 Don’t Know 10 20%
Total 50 100%
(Source: Field Survey with Questionnaire)
The table 4.17 shows the number of respondents and their percentage about investor

awareness about share investment. Majority of respondents i.e. 44% said investors are aware

of share investment, 36% of them disagreed that the public are not aware and the rest 20% of

them said they don’t know about that.

4.4.9 investment analysis. The investment in shares by the investor is made only after the

proper decision is taken by them. So, to drag the view of investors whether they perform

analysis while making an investment or not. Table number 4.18 shows the result of the

responses.

Table 4.18
Performance of Analysis on Equity Investment
S.N. Responses No. of Percentage
Respondents
1 Yes 32 64%
2 No 16 32%
3 Don’t Know 4 8%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.18 shows the number of respondents and their percentage about analysis before

investing in share. Majority of respondents i.e. 64% analyze the company before investing on

it. 32% of them do not perform any analysis and the rest 8% of them said they don’t know.

4.8.10 NEPSE and SEBON ability to protect investor’s interest effectively. The table

4.19 shows the responses against the statement that NEPSE and Securities board are able to

protect investor’s interest effectively.

Table 4.19
NEPSE and SEBON Protect Investor’s Interest Effectively
S.N. Responses No. of Percentage
Respondents
1 Yes 14 28%
2 No 30 60%
3 Don’t Know 6 12%
Total 50 100%
(Source: Field Survey with Questionnaire)

lxxiii
The table 4.19 shows the number of respondents and their percentage about the NEPSE and

SEBON protect the investor’s interest effectively. Only minority of the respondents agreed to

the statement and the majority did not agreed. It means that NEPSE and Securities Board are

not able to protect investor’s interest effectively.

4.8.11 role of NRB’S policy affect the share price of commercial bank. The

performance of commercial banks is mostly influenced by the policy of Nepal Rastra Bank.

So, to know the investor view about it they were asked whether the Nepal Rastra Bank’s

policies affect the share price of commercial banks. Table number 4.20 provides the clear

picture of the respondents.

Table 4.20
NRB Policy Affect the Share Price of Commercial Banks
S.N. Responses No. of Percentage
Respondents
1 Yes 36 72%
2 No 12 24%
3 Don’t Know 2 4%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.20 shows the number of respondents and their percentage about the NRB policy

determine the share price of commercial bank. Only minority of the respondents said no to

the statement and the majority did agreed. It means the share price of commercial banks is

highly affected due to the change in the policy of NRB.

4.8.12 role of interest rate in the share price. The following table (table 4.21) shows the

responses against the statement that rise in interest rate affect the share price.

Table 4.21
Increase in the Interest Rate Decrease Share Price

S.N. Responses No. of Percentage

Respondents
1 Yes 32 64%
2 No 14 28%
3 Don’t Know 4 8%
Total 50 100%
(Source: Field Survey with Questionnaire)
The table 4.21 shows the number of respondents and their percentage of agreement and

disagreement with the statement increase in the interest rate decrease the share price.

Majority of the investor 64%agreed that increase in interest rate decrease in share price. 28%

of them disagreed the statement and 8% of them said don’t know. It means that there exists

negative correlation between interest rate and share price. Increase in interest rate decrease

the share price and decrease in interest rate leads to increase in share price.

4.8.13 fulfillment of paid up capital requirement of commercial bank and share

price. Most of the commercial banks have fulfilled the 8000 million deadlines of the paid-up-

capital as per NRB’s policy. The investor may feel that the commercial bank will not provide

bonus share and declare only cash dividend to the investors. So, to drag the investors view

question is forwarded, after fulfilling the 8 Arab paid-up-capital requirement commercial

bank share price will decrease? Table number 4.22 shows the responses on the statement after

fulfilling the 8 Arab paid-up-capital requirement, commercial bank does not provide bonus to

the investors and the share price will decrease.

Table 4.22
Commercial Banks Capital Requirement Fulfillment Leads to Decrease the Share Price
S.N. Responses No. of Percentage
Respondents
1 Yes 25 50%
2 No 22 44%
3 Don’t Know 3 6%
Total 50 100%
(Source: Field Survey with Questionnaire)

The table 4.22 shows the number of respondents and their percentage of agreement and

disagreement with the statement after fulfillment of 8 Arab requirement will the commercial

bank stop distributing bonus share, and their share price will decrease 50% of the respondents

agreed the statement, 44% disagreed and 6% were reluctant. It suggests that the investors feel

lxxv
that the commercial banks will not provide bonus and focus on cash dividend after meeting

the paid-up-capital requirement, and this is the reason behind the fall of price of commercial

banks in the fiscal year 2016/017.

4.8.14 role of political situation. To find out whether the political instability is the major

cause for the market falling and low transaction of NEPSE, here the question was asked to

the respondents and the response shown by them is shown in the table number 4.23.

Table 4.23
Political Situation Changes the Share Price
S.N. Responses No. of Percentage
Respondents
1 Yes 24 48%
2 No 18 36%
3 Don’t Know 8 16%
Total 50 100%
(Source: Field Survey with Questionnaire

The table 4.23 result shows that the political also changes the share price. 48% of the

respondents agreed that political situation affect the share price, 36% of them disagreed and

the rest 16% response was they don’t know about it.

Analysis of free opinions of respondents.

To identify the major problem of the Nepalese stock market and the requirement for the

development of stock market the respondents were given the questionnaire and provide their

opinion freely. Out of the 50 questionnaire papers only 85% respondents replied about this

and the rest 15% gave no response. So, opinions are taken here only from 85% respondents.

The question and all the free opinion and suggestion are presented as here below:

1. In your opinion, what are the major problems of Nepalese stock market?

The respondent answer was;

- Lack of investor friendly rules and regulation of government.

- Over controlled mechanism of SEBON.

 - Instable government of the country.

- Lack of regulatory body for the sectors like hydropower, manufacturing and

processing and hotels.

- Lack of big manufacturing industries in NEPSE listing.

- Lack of another stock exchange limited.

- Lack of stock dealer and other market makers.

- Mutual fund performance is profit maker rather than market maker.

- Lack of systematic and scientific trading system.

- Low numbers of brokers outside the Kathmandu valley.

- Failure of implementing the most effective policy by SEBON.

- Investor feels they are un-secure.

- Restriction to the entry of NRN’s in the stock market.

- Lack of proper vision of taxation regarding the charge of value added tax (VAT) to

the broker companies.

- Delay of CDS system.

Another question was about the development of the stock market, different parties gave their

suggestions which are as follows;

2. In your opinion, what is to be done to develop the Nepalese stock market?

The response was:

- Increase the number of broker.

- Provide the broker license to the banks.

- Increment of share collateral lending criteria to more than 70%

- Promote the industrial and real estate sector in the NEPSE listing.

- Implementation of fully automated online trading system.

- Supervision of the mutual funds in terms of their cash holding proportion.

lxxvii
 - Establishment of stock dealer.

- Motivate the Non-Residential Nepalese (NRN) to invest in stock market.

- Decrease the interest rate in share loan.

- Improve the performance of the regulatory agency of insurance sector.

- Establishment of efficient and effective trading system.

4.4 Major Findings of the Study

Because of the different nature of the data, the major findings of the study are presented

separately for the secondary data analysis and primary data analysis.

Major Findings from Secondary Data.

1. The study shows that the average EPS of EBL and NABIL are the highest. Both EBL and

NABIL have the higher MPS. Hence, EPS directly affects the MPPS.

2. CV of MPS in SBL is high among the selected banks. There is high risk associated in

market price of share for the investors and shareholders of this bank. The CV of MPS in

NIBL is low which indicates that there is low risk involved in market price per share of the

bank.

3. The CV of EPS in SBI is the highest, which mean that SBI’s common stock, are riskier as

compared to other banks. The CV of NABIL is lower comparing with others and it is less

risky among all.

4. The CV of DPS in HBL is the highest and NIBL has the lowest. The EBL and SBI have

also the high coefficient of variation. Thus, it can be concluded that HBL has higher

fluctuation in DPS among all selected banks. The CV of EBL and SBI indicates that these

banks common stocks are riskier as compared to other sample banks. The least CV of NIBL

indicates that NIBL has the highest consistency in paying dividend.

5. The SBL has the highest and SANIMA has the lowest CV of BVPS respectively. The CV

of SBL shows that there is fluctuation in BVPS and CV of SANIMA shows lower

fluctuation among the sampled banks.

6. The correlation analysis shows there is high degree of positive relationship of MPS with

EPS among all other different variables and is significant at 0.01 level of significance (2-

tailed).

7. The simple regression analysis of MPS on EPS shows that the MPS of NIBL is highly

affected by EPS than the other banks and MPS of EBL is not affected by EPS.

8. The simple regression analysis of MPS on DPS shows that MPS of NABIL and NIBL are

highly affected by DPS and MPS.

9. The simple regression analysis of MPS on BVPS shows that MPS of EBL is highly

affected by BVPS than other banks and MPS of SANIMA is lightly affected by BVPS.

10. The coefficient of multiple determination shows MPS of NIBL and NABIL is highly

(totally) influenced by the joint effect of EPS, DPS and BVPS and there is a lesser amount of

variation in MPS of EBL.

Major findings from the survey.

1. The primary analysis shows that P/E ratio and book value per share helps in identifying

over or undervalued securities. To change the share price of a company, interest rate, EPS,

NRB’s policy and DPS has greater value.

2. Minority of the respondents (28%) agreed that NEPSE and Securities Board are able to

protect the investor’s interest effectively.

lxxix
3. Majority of the investor invest in the share of commercial banks because of the continuous

dividend declaration of the bank. Some of them invest in commercial banks because they are

well managed.

4. Majority of investors are convinced that earning per share is the major determinants of

share price increase or decrease. They assume higher the EPS higher will be the share price.

5. Political fluctuation and instability cause change in share price. Investors believe it the

political situation is stable the price moves upward and if it is unstable price of share will

move downward.

6. More than 64% of the investors perform analyze the stock and the company before

investing. It means the investors are being aware about equity investment.

7. Investors still feel unsecure in equity investment due to lack of systematic and scientific

system of trading. The delay in CDS and clearing system is still the main problem of the

stock market.

8. Establishment of fully automated trading online system will give the market a new height.

9. Investor believe that providing the broker licence to the banks and establishment of new

stock exchange creates the healthy competition and improves the market performance and

market volume.

10. The responses show cash dividend, interest rate, political instability, risk of the company,

information, rumours and whims, NRB rules and regulation, also affect the share price.

11. Majority of respondents believed that EPS, BVPS and DPS are the most influencing

factor of share price increase or decrease.

12. 50% investors believed that after meeting the requirement of increased paid up capital

structure the commercial bank will not provide bonus share and focus on cash dividend.

13. 72% of the respondents said that NRB’s Policy affect the stock market.
14. 64% of the respondents agreed with the statement, increase in the interest rate results

decrease in share price.

lxxxi
 Chapter- V

Summary, Conclusion and Recommendation

This is the fifth and last chapter of the study. This chapter is divided into three parts: summary,

conclusion and recommendation. They are discussed below.

5.1 Summary

The number of investor in stock market is increasing day by day. Many young people are

attracted towards stock investment. Investment in common stock is not an easy task. It requires

proper knowledge, risk taking capacity and patience. Since, the stock investment provides a

handsome profit sometimes with the increase in market price and dividend distributed by the

company, many people are attracted in this sector. But, sometimes the stock price declines so

heavily that the dividend provided by the company cannot cover the loss amount occurred due to

decrease in MPS.

Basically, the price of the stock is determined by demand and supply, but there are many

other factors that lead to the fluctuation in price. Company financial indicator like EPS, DPS,

BVPS, P/E ratio, cost of equity, cost of fund and other environmental factor like government’s

policy, fiscal policy, political situation, NRB’s policy, news, rumours, interest rate affects the

share price. Nobody can predict the main factors that affect the change in share price. It has been

a major concern to many researcher and investors regarding the major determinants and variables

of share price.

The study is focused on the identification of variable that affect the share price and

analysis of the relationship of these variables with the market price per share of the commercial

banks. Hence, seven listed commercial banks are taken in consideration for the purpose. Market

price of the sample banks has been analytically tested here to compare with other financial
indicator like EPS, DPS, BVPS and P/E ratio. For this purpose, secondary data was gathered

from different sources and different financial tools as well as statistical tools have been used for

analysis. Along with this, a set of 13 questions were prepared and presented to 50 respondents to

collect primary data related the share price change on Nepalese commercial banks. This study

mainly aims to examine the factors affecting the share price of commercial bank in the capital

market. The share price of commercial banks has been passing through up and down in recent

years. Stock market seems to be highly sensitive and fluctuating, hence the basic focus of the

study is to examine factors affecting stock price with the help of five years data on seven sample

banks.

The study is based on both primary and secondary data analysis. The secondary data are

collected from the annual reports of the banks available in their websites. For the support of this

study, survey of questionnaire from various respondents have been taken. The major findings

from the financial analysis is presented below:

- The banks with higher EPS, DPS and BVPS also have higher MPPS.

- The MPPS of the company is mostly affected by EPS, BVPS and DPS.

- The average EPS of the banks for the study period was found to be Rs.44.13

- The average DPS of the banks is Rs.33.58.

- The average MPS of the sample bank is Rs.1190.42.

- The average BVPS of the sample bank is Rs.197.94.

- The EPS of six commercial bank is found to be decreasing in the fiscal year 2016/2017.

- The MPS of all the commercial banks is in decreasing order. Due to this the overall market

capitalization is also decreasing.

83
 From the analysis of primary data, it is found that investors are not satisfied with the

performance of NEPSE and SEBON, they believe that both the entity has not been able to

protect the investors interest. Majority of the investors think themselves as smart and aware, but

they do not perform analysis before investment. Investors run to grab the company share even at

higher price that have the highest EPS and DPS. Most of the investor invest in common stock of

commercial banks share because they are well managed and provide continuous dividend. The

investor believes that after fulfillment of paid-up-capital to 8000 million, as directed by Nepal

Rastra Bank, commercial bank will not distribute bonus share and focus on cash dividend. The

regulatory body of the stock market SEBON is not able to adopt systematic and efficient trading

system, for the capital market development. As a result, there is not adequate transparency in the

performances of the listed companies and the capital market due to which the capital market is

struggling to become matured. The study is divided into five main chapters, they are discussed

below:

The first chapter covers the general introduction of the commercial banks which were

taken as the sample of the study. It also includes the objective of the study, statement of the

problem, significance of the study, objective of the study and the limitation of the study.

The second chapter consists of the review of the literature. It includes the study made by

the other researcher in the field of common stocks analysis. Various books, journals, unpublished

materials articles related to the stock market were taken as the basis of the literature review.

The third chapter includes the methodology taken for the research. Research design,

sources of data, the sample size and the tools taken for analysis are included in this chapter.
 The fourth chapter covers the presentation and analysis of the data collected from various

sources. The collected data are summarized in the table for better understanding and

interpretation is made in this chapter.

The fifth and last chapter is summary, conclusion and recommendation. The first part of

this chapter summarizes the study in brief. In the second part conclusion from the study is drawn

from the basis of data presentation and analysis section. Finally based upon the major findings of

the study recommendation is made in the last part.

5.2 Conclusion

The study of the factors affecting share price has been a subject of great interest these days.

Specially, the share price of commercial banks in Nepal is very fluctuating. It is a subject of

curiosity to identify the factors affecting share price of commercial banks. The shares of

commercial banks dominate the portfolio of majority of investors. The banking sector plays a

crucial role in the NEPSE index. So, this study examines the factors affecting share price of

commercial banks over the period 2012-2017. The findings of the study over the past five-year

period revealed that dividend per share and earning per share, book value per share has the

significant positive association with share price.

From the secondary data analysis, it is found that the commercial banks performance is

highly inconsistent in the relationship of MPPS with EPS, DPS and BVPS. The MPPS is found

to be highly correlated with the EPS and BVPS. From the primary data analysis, factors affecting

the market price of share of commercial banks listed in Nepal Stock Exchange are identified.

Such internal factors affecting the share price are earnings per share, book value, dividend

payment, price earning ratio, paid up capital of the banks. Similarly, there are other

environmental factors affecting the market price of share. Such environmental factors affecting

85
the share price are government instability, NRB’s policy, SEBON performance, political

influences. NEPSE is in primitive stage and it has not significant effect of return on assets,

retention ratio, non-performing loan of the bank, cash reserve ratio and cost of fund. After

analyzing the secondary and primary data, the following conclusions have been achieved.

- There exists significant relationship of EPS, DPS, BVPS and P/E ratio with MPPS.

- The EPS of the EBL is high in four fiscal years i.e.2012/2013 to 2015/2016 and NABIL leads

in the fiscal year 2016/017.The mean EPS of EBL and NABIL are higher than other sample

banks. The mean MPS of the same banks EBL and NABIL is found to be higher than other

banks. So, it can be concluded that higher EPS results to higher MPS.

- Under DPS analysis EBL, NABIL, and NIBL have higher EPS. The MPS of the same banks are

higher as per the same order of DPS. It suggests that higher the DPS leads to higher MPS.

- Under MPPS analysis EBL has the highest MPPS and SANIMA the lowest. The EPS of EBL is

highest and SANIMA is lowest. So, it can be concluded that higher the EPS higher the MPPS.

- Under BVPS analysis EBL and NABIL has higher book value and SANIMA and SBI has the

same BVPS. NIBL has the consistent BVPS.

- The major findings of the study show that the market price per share has high degree of positive

relationship with EPS, BVPS and DPS.

- Nepalese capital market is mainly dominated by banks and financial institutions, hence loose

monetary and NRB’s policy could take the commercial banks share price to a new high.

- Most of the investors are attracted towards the commercial banks share because they view

commercial banks as the well managed and risk-free sector in NEPSE. So, they are always

profitable and provide a handsome dividend to the investors.

- Positive political development with stable government can promote share market further which

can play a vital role for financial intermediation and resource mobilization through capital

market.

-EPS is the most influencing factor of share price. Besides this, NRB’s policy, political situation,

capital structure of the company also influences the share price of the company.

- The price earning ratio of the sample bank suggests that still the price of the commercial banks

is high and overvalued. The P/E ratio of SBL and SANIMA is less among other so they are taken

as the risk-free stock to invest.

- The proportion of educated investors is high in the market most of them perform self analysis

about the stock and company they invest in.

- BVPS and DPS individually do not influence the share price, but they jointly influence the

share price. EPS is the most influential variable among all.

- Earnings, book value, dividend payment, paid up capital, price earning ratio, political stability

are the major factors affecting the share price in NEPSE, according to the respondents of the

survey. Cost of capital, retention ratio cost of equity, market liquidity, and change in

management does not significantly affect the share price in NEPSE.

5.3 Recommendation

Based on this study, the major recommendations are as follows.

1. Most of the respondents/investors were found to rely very much only EPS, DPS, BVPS and

P/E ratio of a company. Sometimes the EPS and DPS only may not cover the return as per

risk associated with it. The investors are recommended not to perceive EPS, DPS, BVPS

only as the performance measurement of the company. Other fundamental factors like cost

of capital, corporate governance of the company, non-performing loan ratio should also be

87
 taken into considerations. Investors are recommended to invest in the stock of the company

only after proper fundamental as well as technical analysis and also take only the calculated

risk.

2. The DPS of EBL in the last two fiscal years suggest that the bank is providing attractive

dividend only when there is need of capital increment otherwise it is interested in retaining

the earnings. Hence it is found to be in very fluctuating manner. So, EBL should focus on

continuous and increasing dividend pattern to attract the investors to invest in their common

stock. The ultimate goal of the company should be focused on the shareholder’s wealth

maximization by providing attractive dividend.

3. The EPS of EBL and SBL have been decreased more than half in the fiscal year 2016/017,

which does not represent a good financial health. So, the banks are recommended to find out

the reason of the fall in the EPS and take corrective action. Hence, EBL and SBL should

focuses on the profitability increment.

4. During the study it is found that investors have limited choice of investment sector. Nepalese

stock market is dominant by bank and financial institutions. There are other big companies

operating in Nepal. NEPSE and SEBON should make a policy to motivate other sectors like

manufacturing and processing, trading and real estate to come under listing of NEPSE. It

would increase the market size and investors would have sectoral choices of investment.

5. Majority of the investors feel that NEPSE and SEBON are not serious in protecting the

interest of investors. Hence both the bodies should be more responsible towards investors by

providing the investor friendly trading platform. The listed company not publishing their

annual report in time is to be punished by the NEPSE and make them oblige towards the

shareholders and investors. The listed companies are recommended to provide their
 quarterly and yearly reports in their websites, so the investors are able to track the financial

health and position of the company.

6. Most of the banks EPS has been declined in the fiscal year 2016/017, it might be the reason

of paid-up-capital increment as per the directive of NRB. So, the banks are recommended to

increase their earnings to maintain a balance between earnings and increased capital. It can

be done by reducing the operating cost, decrease the non-performing loan and minimize the

cost of fund.

7. For the further development of the stock market SEBON should establish and introduce the

fully online trading system as per international standards, provide the broker licence to the

commercial banks, motivate the NRN to invest in capital market.

8. ICRA Nepal and other rating agency should be made more responsible to publish credit

rating information of the IPO and FPO timely so that the potential investors have a clear

concept of the financial health and prospects of organization.

9. The regulatory body for hydropower, hotels, manufacturing and processing sector should be

established very soon.

10. The new investors coming in the market are suggested not to invest in common stock

without proper knowledge and investment strategy. The new investors are recommended to

buy the stock for investment purpose rather than trading purpose.

11. During the study it is found that the investors now-a-days is more rational and aware than

before. They measure the cost savings, invest as per their risk bearing capacity and consider

tax savings. Hence, the investor who holds the stock for longer period should be charged less

capital gain tax. So, it is recommended to NEPSE to reduce the broker commission,

89
 minimize the capital gain tax for long term stock holders and cut off the DP fee charged for

every transaction.

12. For the future study in the same are the researcher are recommended to focus more on

financial analysis tools rather than statistical analysis tools. The more use of financial

analysis tools on large sample will provide more accurate findings in the stock price

behaviour.
 REFERENCES

Acharya, R.C. (2008). Determinants of stock price in Nepalese commercial bank. (Unpublished

Master’s Degree Thesis). TU, Nepal.

Almumani, M.A. (2014). Determinants of equity share prices of the listed banks in Amman

Stock Exchange for the period of (2005-2011). International Journal of Business and

Social Science.

Dhakal, R. (2007). Determinants of stock price in Nepalese commercial banks. (Unpublished

Master’s Degree Thesis). TU, Nepal.

Dhamala, S.P. (2003). Determinants of share price in Nepal financial market. (Unpublished

Master’s Degree Thesis). TU, Nepal.

Dhungel,S. (2005). Stock price movement and financial performance of Nepalese listed

companies. (UnpublishedMaster’s Degree Thesis), TU, Nepal.

Francis, J.C. (2002). Investments: analysis and management. New York: McGraw Hill

Publications.

Gitmen, L.J. (1991). Principle of managerial finance. New Delhi: Pearson Education

Incorporation.

Gupta, O.P. (1985). Behavior of share prices in India: a test of market efficiency. New Delhi:

National Publishing House.

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

Journal of Business.

Neupane, R.C. (2004). Determinants of stock price in Nepal Stock Exchange. (Unpublished

Master’s Degree Thesis). TU, Nepal.

91
Nirmala, P.S., Sanju, P.S & Ramachandran, M. (2011). Determinants of share price in India for

the period of (2000-2009). Journal of Emerging Trends in Economics and Management

Sciences.

Pradhan, R.S., & Balampaki, S.B. (2004). Fundamentals of stock return in Nepal. SEBON

Journal Kathmandu.

Pradhan, R.S. & Dahal, S. (2015). Factors affecting the share price: Evidence from Nepalese

commercial banks. Kathmandu: Tribhuvan University.

Sharma, S. (2011). Determinants of equity share prices in India for the period of (1994-2009).

Journal of Arts, Science and Commerce.

Sharpe, W. F.,Alexander, G.J. and Bailey, V.B. (2000). Investment. New Delhi: Prentice Hall of

India.

Shiller, F. (1985). The study of behavior of bank stocks. New York: ISBN Printing House.

Shrestha, P.K. & Subedi, B.R. (2015). Determinants of stock market performance in Nepal for

the period of (2000-2014). Nepal Rastra Bank Economic Review Journal.

Van Horne, J. C., & Wachowicz, J.M. (2000). Fundamentals of financial management. New

Delhi: Prentice Hall of India.

Walter, J.E. (1963). Dividend policy: it’s influence on the value of enterprise. New Delhi:

Prentice Hall of India.

Weston, J.F. & Brigham, E.F. (1987). Essentials of managerial finance. Chicago: The Dryden.
 Appendix-A

Calculation of Mean, S.D. and CV of selected banks

1. Everest Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 91.88 60.53 291.53 1591 17.316
2013/014 86.04 62 296.3 2631 30.579
2014/015 78.04 36.57 335.6 2120 27.166
2015/016 65.97 70 320.06 3385 51.311
2016/017 44.32 33 253.28 1353 30.528
Total 366.25 262.1 1496.77 11080 156.89960152
Mean 73.25 52.42 299.354 2216 31.379920303
S.D. 18.8650 16.5451 31.3682 819.0537 12.3913

(Source: Annual Reports of EBL)

2. Himalayan Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 39.94 28.42 193 653 16.350
2013/014 34.19 15 192.02 700 20.474
2014/015 33.1 21.05 209.92 941 28.429
2015/016 33.37 42.11 208.81 813 24.363
2016/017 43.03 31.58 196.12 1500 34.859
Total 183.63 138.16 999.87 4607 124.47495096
Mean 36.726 27.632 199.974 921.4 24.894990192
S.D. 4.4976 10.353 8.7143 342.041 7.153

(Source: Annual Reports of HBL)

93
 3. Nabil Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 91.05 65 275 1815 19.9341
2013/014 83.68 65 251 2535 30.29398
2014/015 57.24 36.84 259 1910 33.36827
2015/016 59.27 45 244 2344 39.54783
2016/017 58.54 48 228 1523 26.0164
Total 349.78 259.84 1257 10127 149.1606
Mean 69.956 51.968 251.4 2025.4 29.83212
S.D. 16.1208 12.578 17.4442 409.631 7.410

(Source: Annual Reports of NABIL)

4. Nepal Investment Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 46.2 35 169 784 16.9697
2013/014 40.7 40 166 960 23.58722
2014/015 30.9 34.7 155 704 22.78317
2015/016 29.3 41 187 1040 35.49488
2016/017 34.2 40 176 770 22.51462
Total 181.3 190.7 853 4258 121.3496
Mean 36.26 38.14 170.6 851.6 24.26992
S.D. 7.0699 3.033 11.8870 141.650 6.802

(Source: Annual Reports of NIBL)

5. Nepal SBI Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 32.75 20 161.26 850 25.9542
2013/014 34.83 22.07 171.15 1280 36.74993
2014/015 34.84 28.42 184.62 887 25.45924
2015/016 34.59 29.53 178.19 1875 54.20642
2016/017 30.61 16.34 150.15 925 30.21888
Total 167.62 116.36 845.37 5817 172.5887
Mean 33.524 23.272 169.074 1163.4 34.51773
S.D. 1.8483 5.610 13.6772 433.423 11.901

(Source: Annual Reports of SBI)

6. Siddhartha Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 29.8 22.11 154.53 300 10.06711
2013/014 38.63 23.16 165.44 810 20.96816
2014/015 37.77 21.05 184.43 678 17.95075
2015/016 41.53 48.75 206.54 869 20.92463
2016/017 20.77 14 130.28 485 23.35099
Total 168.5 129.07 841.22 3142 93.26165
Mean 33.7 25.814 168.244 628.4 18.65233
S.D. 8.4347 13.314 29.0076 235.445 5.167

(Source: Annual Reports of SBL)

7. Sanima Bank Limited

Year EPS DPS BPS MPS P/E Ratio

2012/013 15.13 10.53 120.24 260 17.1844
2013/014 19.28 15.79 127.77 638 33.09129
2014/015 24.47 21.05 134.52 555 22.68083
2015/016 32.55 15.79 120.96 750 23.04147
2016/017 26.31 16 131.36 431 16.3816
Total 117.74 79.16 634.85 2634 112.3796
Mean 23.548 15.832 126.97 526.8 22.47592
S.D. 6.6819 3.7206 6.2914 189.301 6.674

(Source: Annual Reports of SANIMA)

95
 Appendix B
1. Correlation of DPS with MPPS
MPPS (X) DPS (Y) X×Y X2 Y2
2216 52.42 116163 4910656 2747.856
921.4 27.63 25458.28 848978 763.4169
2025.4 51.96 105240 4102245 2699.842
851.6 38.14 32480 725223 1454.66
1163.4 23.27 27072.32 1353500 541.4929
628.4 25.81 16219 394887 666.1561
526.8 15.83 8339.244 277518 250.5889
Total 8333 235.06 33097112613006 9124.012
(Source: Appendix A)

2. Correlation of EPS with MPPS

MPPS (X) EPS (Y) X×Y X2 Y2
2216 73.25 162322 4910656 5365.563
921.4 36.726 33839.34 848978 1348.799
2025.4 69.956 141689 4102245 4893.842
851.6 36.26 30879 725223 1314.788
1163.4 33.52 38997.17 1353500 1123.59
628.4 33.7 21177.08 394887 1135.69
526.8 23.548 12405.09 277518 554.5083
Total 8333 306.96 44130912613006 15736.78
(Source: Appendix A)

3. Correlation of BVPS and P/E ratio with MPPS

MPPS (X) P/E Ratio BVPS
2216 31.37 299.354
921.4 24.89 199.974
2025.4 29.83 251.4
851.6 24.269 170.6
1163.4 34.517 169.07
628.4 18.652 168.244
526.8 22.47 126.97
Total 8333 185.998 1385.612
(Source: Appendix A)
 Appendix-C
Regression Analysis

a. MPS on EPS
1. EBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .003 .000 -.333 2544.44
a Predictors: EPS (Constant)
Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 2244.50 10585.335 0.384 0.727
EPS 0.379 69.07 0.003 0.005 0.996
a Dependent Variable: MPS

2. HBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .534 .286 0.48 1963.44
a Predictors: EPS (Constant)

Coefficients (a)
Unstandardized Standardize T Sig.
coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) -1480.85 6240.60 -.601 0.590
EPS 39.50 53.94 0.534 1.095 0.353
a Dependent Variable: MPS

3. NABIL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate

97
 1 .993 .987 0.982 140.9423
a Predictors: EPS (Constant)
Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) -1856.50 259.896 -7.832 0.004
EPS 56.05 3.788 0.993 14.809 0.001
a Dependent Variable: MPS

4. NIBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .996 .993 0.911 249.81
a Predictors: EPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) -1234.75 407.60 -3.626 0.036
EPS 62.177 9.628 0.996 6.458 0.008
a Dependent Variable: MPS

5. SBI
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .992 .984 0.987 55.5066
a Predictors: EPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
 coefficients
Model B Std. Error Beta
1 (Constant) -756.50 281.87 -6.584 0.096
EPS 168.655 18.178 0.992 9.278 0.068
a Dependent Variable: MPS

6. SBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .961 .924 0.961 234.50
a Predictors: EPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) -1855.74 281.875 -2.156 0.326
EPS 168.655 1.88 0.961 6.458 0.068
a Dependent Variable: MPS

7. SANIMA
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .972 .944 0.961 234.50
a Predictors: EPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) -1285.74 398.20 -3.145 0.046
EPS 22.56 7.56 0.972 5.678 0.058
a Dependent Variable: MPS

99
b. MPS on DPS.
1. EBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .632 .399 0.173 2042.90
a Predictors: DPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) -9850.76 10125.26 -0.925 0.402
DPS 112.40 88.08 0.632 1.250 0.270
a Dependent Variable: MPS

2. HBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .876 .766 0.642 1172.1561
a Predictors: DPS (Constant)

Coefficients (a)
Unstandardized Standardize T Sig.
coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 2112.15 1874.677 -1.214 0.312
DPS 76.62 17.566 0.876 2.786 0.061
a Dependent Variable: MPS

3. NABIL
Model Summary
 Model R R square Adjusted R Std. Error of the
square estimate
1 .766 .587 0.434 788.34
a Predictors: DPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 746.39 544.878 1.439 0.214
DPS 67.96 26.024 0.766 1.946 0.136
a Dependent Variable: MPS

4. NIBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .876 .753 0.486 644.50
a Predictors: DPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 544.50 407.60 0.439 0.724
DPS 57.62 9.628 0.876 2.024 0.291
a Dependent Variable: MPS

5. SBI
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .758 .574 0.479 743.50

101
a Predictors: DPS (Constant)

Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 432.40 276.80 0.486 0.624
DPS 56.44 16.44 0.758 1.254 0.287
a Dependent Variable: MPS

6. SBL
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .674 .454 0.141 1860.40
a Predictors: DPS (Constant)
Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 334.50 756.60 -1.456 0.291
DPS 33.70 56.50 0.674 2.936 0.062
a Dependent Variable: MPS

7. SANIMA
Model Summary

Model R R square Adjusted R Std. Error of the

square estimate
1 .587 .344 1.44 1844.50
a Predictors: DPS (Constant)
Coefficients (a)

Unstandardized Standardize T Sig.

coefficients d
coefficients
Model B Std. Error Beta
1 (Constant) 275.06 456.80 0.365 0.715
DPS 29.40 6.54 0.587 1.126 0.294
a Dependent Variable: MPS
 Appendix-D

Questionnaire

Dear Sir/Madam,
For your kind information this is an attempt to identify the major factors affecting the share price
of Nepalese Commercial Banks listed in NEPSE for the partial fulfillment of Thesis required for
Master of Business Studies Degree, from Tribhuvan University. To identify the major
determinants of share price of Nepalese Commercial Banks listed in NEPSE your view will serve
as an important part in drawing conclusion. So, you are requested to fill up the following
questionnaire with the best answer in your view. I would be very grateful for your kind co-
operation and providing your precious time.
Thank You,

Laxmi Dhakal
(Researcher)
Master of Business Studies
Kasturi College of Management T.U.

Respondents:

Name: _______________________________ Sex: M  F  Age: _________ Years

103
Occupation (Tick One):
 Actively Trading
 Others and interested in share investment
None of others
Academic Qualification (Tick One)
Under SLC
Higher Secondary
Graduate
 Post Graduate
Questions

1. It is found that most of the investors of Nepal are attracted to invest in the share of

commercial banks. In your opinion what is the reason of attraction in commercial banks

sector?

 Risk free sector

Well managed

Continuous dividend

 No alternative available

2. Do you think that before and after publication of financial reports changes a company’s

share price?

 Yes

 No

 Don’t know

3. Earning per share determines the share price, higher EPS results higher price?

 Yes

 No
  Maybe

4. Does the dividend distribution pattern of the company increase or decrease the share

price?

 Yes

 No

 Maybe

5. Does book value of share affect the company share price in the market?

 Yes

 No

 Don’t know

6. What do you think Nepalese investor consider lower P/E ratio in selecting stock?

 Yes

 No

7. Do you think that Nepalese investor are aware about equity investment?

 Yes

 No

 Don’t know

8. Do Nepalese investor perform any analysis before investing in a stock?

 Yes

 No

 Don’t know

9. What do you think that NEPSE and SEBON protect the investor’s interest?
105
  Yes

 No

 Don’t know

10. NRB’s policy affect the share price of commercial banks?

 Yes

 No

 Don’t know

11. Does rise in interest rate decrease the share price?

 Yes

 No

 Don’t know

12. Most investor says that the commercial bank will not provide bonus share and only gives

cash dividend after meeting the capital requirement, and the share price will decrease.

What do you think is it right?

 Yes

 No

 Don’t know

13. Does the political situation affect the share price and the share market?

 Yes
  No

 Don’t know

Analysis of free opinions of respondents

Please provide your valuable opinion in the following questions.

1. In your opinion what are the major problems of Nepalese stock market?

2. In your opinion, what is to be done to develop the Nepalese stock market?

107
 Appendix E

List of Respondents

S.N. Name of Respondents Age Sex Occupation Academic Qualification

1. Amrit Karki 28 M Active Investor BBS
2. Kamal Bhandari 32 M Active Investor BA
3. Hemraj Adhikari 37 M Potential Investor BBA
4. Krishna Pd. Pokhrel 42 M Active Investor PCL
5. Sanju Bohora 41 F Active Investor Masters
6. Maiya Bhandari 24 F Active Investor Diploma
7. Surya Bhattarai 23 M Active Investor SLC
8. Badri Tamang 44 M Potential Investor Masters
9. Suresh Shrestha 48 M Active Investor SLC
10. Raju Rai 28 M Active Investor +2
11. Dor Raj Sunuwar 26 M Active Investor BBS
12. Bal Kumar Adhikari 27 M Potential Investor PCL
13. Narayan Saha 49 M Active Investor under SLC
14. Yogendra Poudel 35 M Active Investor Master
15. Suresh Sahani 31 M Active Investor BBS
16. Neha Baniya 25 F Active Investor BBA
17. Puspa Lata Karki 33 F Active Investor BBS
18. Rojina Baidhya 24 F Active Investor +2
19. Shiva Chaulagain 22 M Active Investor under SLC
20. Rupesh Charmakar 44 M Potential Investor IA
21. Manish Choudhary 29 M Potential Investor PCL
22. Sunita Pokhrel 24 F Active Investor PCL
23. Bhulhari Sapkota 23 M Potential Investor PCL
24. Dipak Thapa 35 M Active Investor PCL
25. Bhakti Bdr. Gurung 34 M Active Investor BBS

26. Sohan Maskey 48 M Active Investor Master

27. Kamal Pokhrel 51 M Active Investor BBS
28. Surendra Pathak 21 M Potential Investor +2
29. Sanjeev Giri 24 M Potential Investor BBA
30. Mohit Sahani 37 M Active Investor BBS
31. Mahesh Sunuwar 36 M Active Investor Master
32. Ankit Aggrawal 34 M Active Investor BBS
33. Surya Pradhan 43 M Potential Investor PCL
34. Kiran Dhakal 42 M Active Investor Masters
35. Bishnu Dangi 52 M Active Investor under SLC
36. Rajendra Raut 32 M Potential Investor PCL
37. Som Raj Giri 36 M Potential Investor Masters
38. Netra Neupane 41 M Active Investor under SLC
39. Punya P. Ghimire 37 M Active Investor under SLC
40. Bal Bahadur Rai 30 M Potential Investor PCL
41. Mohan Shakya 35 M Active Investor BBS
42. Rajan Choudhary 28 M Active Investor BBS
43. Ramjee Chauhan 44 M Active Investor Masters
44. Kobid Khadka 28 M Active Investor under SLC
45. Shyam Kafle 33 M Active Investor Diploma
46. Bhup Bdr. Khadka 43 M Active Investor under SLC
47. Sundar Dallakoti 32 M Active Investor under SLC
48. Harka Sundas 29 M Active Investor BBS
49. Jit Kumar Ban 36 M Active Investor BBA

109
50. Ram Kumar Jha 37 M Active Investor BE