DETERMINANTS OF SHARE PRICE:

EVIDENCE FROM NEPALESE

COMMERCIAL BANKS

By:
Susmita Bajimaya
PU Registration No: 128-2-3-00206-2015
Novel Academy

A thesis submitted to the

Purbanchal University, Faculty of Management
In Partial Fulfillment of the Requirement for the Degree of
Master of Business Administration (MBA)

August, 2017
New Road, Pokhara-08
 DECLARATION

I hereby declare that the report prepared is a result of my own study/observation

carried out in the year 2017. I assert that the statements made and conclusion/s drawn
are an outcome of my observation and briefing received during the research period. I
further declare that to the best of my knowledge and belief, the report does not contain
any part of any work which has been submitted to any other University or Institute or
published earlier.

Date: 2017-08-28
……………………………

Susmita Bajimaya

PU Reg. No. 128-2-3-00206-2015

Novel Academy, Pokhara

i
 CERTIFICATE OF SUPERVISOR

This is to certify that the thesis entitled “Determinants of Share Price: Evidence
from Nepalese Commercial Banks” submitted by Susmita Bajimaya, PU Reg. No.
128-2-3-00206-2015 to the Faculty of Management, Purbanchal University, in partial
fulfillment for the award of the degree of MBA is a original research work carried out
by him/her under my supervision. As far my knowledge, the contents of this thesis, in
full or in parts, have not been submitted to any other Institution or University for the
award of any degree or for any commercial purpose.

.……………………………..
Dr. Krishna Raj Bhandari PhD
Principal, Novel Academy
MBA, AIT, Thailand
PhD, University of Vaasa, Finland
Date: 2017-08-28

ii
 VIVA-VOCE SHEET

We have conducted the viva-voce examination of the thesis entitled “Determinants

of Share Price: Evidence from Nepalese Commercial Banks” submitted by
Susmita Bajimaya, PU Reg. No. 128-2-3-00206-2015 and found this thesis to be
original work of the student and written according to the presented format. We
recommend the thesis to be accepted as partial fulfillment of the requirement of the
degree of MBA.

Viva-Voce Committee

………………………. …..………………………….
Mr. Bisheswor Acharya Dr. Krishna Raj Bhandari PhD
CEO, Novel Academy Principal, Novel Academy
MBA, AIT, Thailand
PhD, University of Vaasa,
Finland
(Thesis Supervisor)

……………………………….
Prof. Dr. Vikash Kumar K.C.
(External Expert)

iii
 ACKNOWLEDGEMENT

This thesis report has been prepared for the partial fulfillment of the degree of Master
of Business Administration (MBA) under the faculty of management, Purbanchal
University (PU), Nepal. This report attempts to study the determinants of stock price
in context of Nepal by studying commercial banks of Nepal.

In this course, many individuals have contributed their valuable time, suggestions, and
efforts. So I cannot remain isolated without acknowledging them. First of all, I would
like to express my first and foremost gratitude to my supervisor Dr. Krishna Raj
Bhandari PhD for kind support, encouragement, guidance and supervision in helping
me carryout this study to its completion.

Similarly, I would like to extend my sincere gratitude to Novel Academy for

providing me an opportunity to conduct thesis report on my interested topic which
helped me gain much more insight about stock market of Nepal. I equally
acknowledge my sincere gratitude to MBA Coordinator of Novel Academy, Faculty
members of Department of Management, Novel Academy, New Road, Pokhara for
their help and cooperation during the course of the study.

Finally, my gratefulness is for my beloved teachers, for their greatest love and
support. And the last expressions of my gratitude is to my family, friends for their
continuous encouragement in every situation and bringing me to this point.

Susmita Bajimaya

TABLE OF CONTENTS

iv
DECLARATION...............................................................................................................i
CERTIFICATE OF SUPERVISOR..................................................................................ii
VIVA-VOCE SHEET......................................................................................................iii
ACKNOWLEDGEMENT...............................................................................................iv
LIST OF FIGURES.........................................................................................................vii
LIST OF TABLES.........................................................................................................viii
ABBREVIATIONS..........................................................................................................ix
ABSTRACT.....................................................................................................................x
CHAPTER I......................................................................................................................1
INTRODUCTION.............................................................................................................1
1.1 Background..............................................................................................................1
1.2 Statement of the Problem.........................................................................................3
1.3 Objectives of the Study............................................................................................3
1.4. Importance of the Study..........................................................................................4
1.5 Research Hypotheses...............................................................................................4
1.6 Operational Definitions and Assumptions...............................................................7
1.7 Limitations of the Study..........................................................................................9
CHAPTER II...................................................................................................................10
LITERATURE REVIEW................................................................................................10
2.1 Theoretical Review................................................................................................10
2.1.1 Factors affecting the share price.....................................................................10
2.1.2 Theoretical Foundation of Determinants of Share Price.................................12
2.1.3 Banking Sector and Market Price...................................................................15
2.2 Review of Empirical Studies.................................................................................17
2.2.1 Firm Specific Factors and Share Price............................................................17
2.2.2 Macroeconomic Variables and Share Price....................................................21
2.3 Research Gap.........................................................................................................25
2.3 Conceptual Framework..........................................................................................25
CHAPTER III..................................................................................................................27
METHODOLOGY..........................................................................................................27
3.1 Research Plan and Design.....................................................................................27
3.2 Description of Sample...........................................................................................27
3.3 Instrumentation......................................................................................................28
3.4 Data Collection Procedure and Time Frame.........................................................28
3.5 Data Analysis Tools...............................................................................................29

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 3.6 Data Analysis Plan.................................................................................................29
CHAPTER IV..................................................................................................................32
OBSERVATION AND ANALYSIS..............................................................................32
4.1 Mean and Standard Deviation Analysis................................................................32
4.1.1 Descriptive Analysis of Market Price of Commercial Banks.........................32
4.1.2 Average EPS of Joint Venture and Non-Joint Venture Banks........................34
4.1.3 Average DPS of JV banks and NJV banks.....................................................38
4.1.4 Average P/E ratio of JV banks, NJV banks and Aggregate banks..........41
4.1.5 Trend showing relationship between Average MPS and Average NPL.........44
4.2 Descriptive Statistics for Selected Variables of Commercial Bank......................45
4.2.1 Descriptive Statistics for Selected Variables of Commercial Banks..............45
4.2.2 Descriptive Statistics showing selected variables of Joint Ventures Bank.....46
4.2.3 Descriptive Statistics for selected variables of Non-Joint Venture Banks......47
4.3 Hypothesis Testing of Variables (Independent Sample T-test).............................49
4.3.1 Difference in Average Value of MPS between JV and NJV Banks...............49
4.3.2 Difference in Average DPS between JV and NJV Banks...............................49
4.3.3 Difference in Average Value of EPS between JV and NJV Bank..................50
4.3.4 Difference in Average Value of Equity Capital between JV and NJV Banks
..................................................................................................................................50
4.3.5 Difference in Average Value of P/E ratio between JV and NJV Bank.......51
4.3.6 Difference in Average Value of ROA between JV and NJV Banks...............51
4.3.7 Difference in Average Value of NPL between JV and NJV banks.........52
4.3.8 Difference in Average Interest Income between JV and NJV Banks.........52
4.4 Correlation Analysis..............................................................................................53
4.5 Multiple Regression Analysis................................................................................54
4.5.1 Derivation of Models......................................................................................54
4.5.2 Estimated Relationship between MPS and firm specific variables.................57
4.5.3 Estimated Relationship between MPS and Macroeconomic variables of
commercial banks....................................................................................................58
CHAPTER V...................................................................................................................60
RESULTS AND DISCUSSION.....................................................................................60
5.1 Summary of Results...............................................................................................60
5.2 Discussion..............................................................................................................62
CHAPTER VI..................................................................................................................65

vi
FINDINGS, CONCLUSION AND RECOMMENDATION.........................................65
6.1 Summary of Findings............................................................................................65
6.2 Conclusion.............................................................................................................70
6.3. Recommendation..................................................................................................71
6.4. Scope for Further Study........................................................................................71
REFERENCES................................................................................................................73

LIST OF FIGURES

vii
Fig 2.3.1 Conceptual Framework…………………………………………………26

Fig 4.1.1 Trend of Average MPS of JV Bank………….........................................33

Fig 4.1.2 Trend of Average MPS of NJV Bank …………………………………..34

Fig 4.1.3 Trend of Average MPS of Aggregate Banks….......................................34

Fig 4.1.4 Trend of Average EPS of JV Bank ………...…………………………..35

Fig 4.1.5 Trend of Average EPS of NJV Bank ……...….………………………..36

Fig 4.1.6 Relationship between MPS and EPS….………………………………..37

Fig 4.1.7 Trend Analysis and Relationship between MPS and EPS……………...37

Fig 4.1.8 Average DPS of Aggregate Banks….………………………………….39

Fig 4.1.9 Relationship between MPS and DPS…………………………………...40

Fig 4.1.10 Trend Analysis and Relationship between MPS and …………………40

Fig 4.1.11 Trend of Average P/E Ratio of Aggregate Banks……………………..42

Fig 4.1.12 Relationship between MPS and P/E Ratio…………………………….43

Fig 4.1.13 Trend Analysis and Relationship between MPS and P/E….………….43

Fig 4.1.14 Relationship between MPS and NPL………………………………….44

Fig 4.1.15 Trend Analysis and Relationship between MPS and………………….45

LIST OF TABLES
Table 3.2.1 Sample Banks………………………………….……………………… 27

viii
Table 3.4.1 Time Frame……………………………………………………………. 28

Table 4.1.1 Descriptive Statistics of MPS of Commercial Banks…………………. 33

Table 4.1.2 Mean, S.D. and C.V. of EPS of JV and NJV Banks……………………36

Table 4.1.3 Average MPS and EPS of Commercial Banks…….……….................. 37

Table 4.1.4 Mean, S.D. and C.V. of DPS of JV, NJV and Agg. Banks……………. 38

Table 4.1.5 Average MPS and DPS of Commercial Banks…………………………40

Table 4.1.6 Mean S.D. and C.V. of P/E Ratio of JV, NJV and Agg. Banks……….. 41

Table 4.1.7 Average MPS and P/E Ratio of Commercial Banks……………………42

Table 4.1.8 Average MPS and NPL of Commercial Banks……………………… 43

Table 4.2.1 Descriptive Statistics for selected variables of Agg. Banks…………… 44

Table 4.2.2 Descriptive Statistics for selected variables of JV banks……………….45

Table 4.2.3 Descriptive Statistics for selected variables of NJV Banks …………….46

Table 4.3.1 Difference in Avg. MPS between JV and NJV Banks....……………. 48

Table 4.3.2 Difference in Avg. DPS between JV and NJV Banks ………………. 48

Table 4.3.3 Difference in Avg. EPS between JV and NJV Banks ………………. 49

Table 4.3.4 Difference in Avg. Equity Capital between JV and NJV……………. 49

Table 4.3.5 Difference in Avg. P/E Ratio between JV and NJV Banks …………….50

Table 4.3.6 Difference in Avg. ROA between JV and NJV Banks …………….…...50

Table 4.3.7 Difference in Avg. NPL between JV and NJV Banks ...……………….50

Table 4.3.8 Difference in Avg. Interest Income between JV and NJV Banks………51

Table 4.4.1 Correlation Analysis………………………………................................ 51

Table 4.5.1 Determinants of MPS of Agg. Banks……..…………………………… 53

Table 4.5.2 Determinants of MPS based on Firm Specific Factors……....................55

Table 4.5.3 Determinants of MPS based on Macro Economic Variables..................57

Table 5.1 Summary of results……………………………………………………….58

ix
 ABBREVIATIONS

AGM: Annual General Meeting

APR: Annual Percentage Rate
APT: Arbitrage Pricing Theory
BFI: Bank and Financial Institution
CDS: Central Depository of Securities
CRO: Company Registrar Office
DPS: Dividend per Share
EPS: Earning Per Share
FPO: Further Public Offering
FY: Fiscal Year
GOV: Government
GDP: Gross Domestic Product
IPO: Initial Public Offering
JV: Joint Venture
MOF: Ministry of Finance
MPS: Market Price Shares
NEPSE: Nepal Stock Exchange
NJV: Non Joint Venture
ROA: Return on Assets
NPA: Non Performing Assets
NPL: Non Performing Loan
NRB: Nepal Rastra Bank
NASDAQ: National Association of Securities Dealers Automated Quotation
OTC: Over the Counter
SEBON: Securities Board of Nepal
SEC: Securities Exchange Centre
TU: Tribhuvan University

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 ABSTRACT

Equity markets enhance corporate efficiency, spur innovation, and provide a

valuable source of capital for long-term economic development. They also
provide a useful mechanism for governments to raise capital through the sale of
state-owned enterprises. Moreover, equity market investments constitute an
important element of individuals’ assets, particularly as governments shift their
pension systems toward the private sector. In short, it is clear that equities
constitute an increasingly important capital market in the world economy.

The main objective of the study is to identify the firm specific factors and
macro economic variables affecting the share price of commercial bank of
Nepal. Market price per share is selected as dependent variables. Firm specific
variables and macro economic variables are selected as independent variables.
Specifically, it examines relationship of market price of share with the firm
specific factors like dividend per share, Earning per Share, equity capital, Price
earnings ratio, Non performing loan and Return on Assets. It also examines the
relationship between share price of commercial banks and macro economic
variables like GDP growth, inflation, interest rate and political events.

The study has taken sample size of 10 commercial banks of Nepal. The sample
includes five joint venture banks and five non joint venture banks. It includes
total observation of 120 which includes data collected from 2003-2015. The
multiple regression models were estimated to test impact of firm specific and
macroeconomic factors on share price of Nepalese commercial banks. The result
shows that firm specific variables like dividend per share, earning per share,
Return on Assets are the major determining factors affecting the share price of
commercial banks in Nepal. Among the variables, dividend per share is found to
be the most important determining variable that affects the share price. Among
macro economic variables, political events have significant impact on share price
of commercial banks. Political events have both positive and negative
relationship with share price of commercial bank. The result shows that MPS is
positively related with DPS, EPS, equity capital, P/E ratio, ROA, GDP and
inflation. Similarly, MPS is negatively related with NPL and interest income.

xi
 CHAPTER I

INTRODUCTION
1.1 Background
A stock market, equity market or share market is a place where shares of public listed
and delisted companies are traded. It is the aggregation of buyers and sellers (a loose
network of economic transactions, not physical facility or discrete entity) of stocks;
these may include securities listed on a stock as well as those only traded privately.
Market participants include individual retail investors, institutional investors such as
mutual funds, banks, insurance companies and hedge funds, and also publicly traded
corporations trading in their own shares.

Corporations issue shares which are offered for sale to raise share capital. The
owner of shares in the corporation is a shareholder (or stockholder) of the
corporation. A share is an indivisible unit of capital, expressing the ownership
relationship between the company and the shareholder. The denominated value of a
share is its face value, and the total of the face value of issued shares
represent the capital of a company, which may not reflect the market value of
those shares.

The stock market plays an important role in economic development by promoting

capital formation and raising economic growth. Trading of securities in this market
facilitates savers and users of capital by fund pooling, risk sharing, and transferring
wealth. Economic activities can be created by flow of reserves to the most productive
investment. Investors take decisions to invest in particular shares of companies,
keeping in view their share prices. Theories suggest that there is an association
between changes in share prices and changes in financial fundamental variables
(Nisa & Nishat, 2011).

Equity markets enhance corporate efficiency, spur innovation, and provide a valuable
source of capital for long-term economic development. They also provide a useful
mechanism for governments to raise capital through the sale of state-owned
enterprises. Moreover, equity market investments constitute an important element of
individuals’ assets, particularly as governments shift their pension systems toward the
private sector. In short, it is clear that equities constitute an increasingly important
capital market in the world private sector. In short, it is clear that equities constitute
an increasingly important capital market in the world economy (Mosley&Singer,
2008).

All the shares are traded under Nepal Stock Exchange, in short NEPSE. It is
established under the company act, operating under Securities Exchange Act,
1983. The basic objective of NEPSE is to impart free marketability and liquidity to
the government and corporate securities by facilitating transactions in its trading
floor through member, market intermediaries, such as broker, market makers etc.
NEPSE opened its trading floor on 13th January 1994. Government of Nepal, Nepal
Rastra Bank, Nepal Industrial Development Corporation and members are the
shareholders of NEPSE. NEPSE includes the number of listed companies of
banking, hotels, development banks, hydro power, finance, insurance and others.
Nepalese economy is in a developing phase. Financial sector has a crucial role to
pool scattered savings for capital formation. Capital is the lifeblood of business
organizations. Every business enterprise requires short term, intermediate term and
long-term capital fund for the smooth operations and expansion of organizational
activities. Long-term funds plays highly significant role for future growth and
prosperity of the organization. Most business organization collect long term funds
from financial market.

The history of the financial market in Nepal is not so old and it is in the growth stage.
However, the pace of development of said market is not completely satisfactory
compared to the development and emergence of various financial and non-financial
institutions. The financial market in Nepal is not basically different from the
financial market in general. Hence, it has been explained very briefly here. The
financial market is still in infancy in Nepal. Since, the financial market plays an
important role in the efficient distribution and use of resources, it is extremely
important in a country lacking enough capital for investment in different sectors like
Nepal. The system of lending and borrowing in an un-organized way is prevalent in
Nepal since the ancient time. Even today, substantial portion of rural credit is
available from the unorganized sector. The system of providing loan through the
organized sector was initiated by Hearth Adda established in 1993 B.S. The scope

13
of this institution which made available loans only to the government employees in
the beginning was limited.

The system of collecting deposit and granting loans in the organized sector had started
with the establishment of Nepal Bank Ltd. in 1994 B.S. The mobilization of funds by
selling securities to the public had however started with the establishment of Security
Marketing Centre (Present Nepal Stock Exchange) in 2033 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 banks and financial institution have been
established to cater the credit need of individuals and business firms.

1.2 Statement of the Problem

As demand and supply is the basic philosophy in price setting, stock price is also
determined by demand and supply. Besides demand and supply, stock price
movement is affected by both qualitative and quantitative factors but still there lies
controversy to determine the absolute factor. The stock price fluctuates time to time
and stock exchange reacts with the environmental changes. This study tries to
identify the major factors affecting the stock price with the degree of affection. More
specifically, this study is expected to answer the following research questions;

i. What are the major determinants of the stock price of commercial banks in
NEPSE?
ii. What is the effect of the dividend on the stock price?
iii. How size or equity capital of commercial banks affect the share price?
iv. How Non Performing Loan of commercial bank affect its share price?
v. How macro economic variables Like GDP, interest and Inflation affect the
stock price of commercial banks?
vi. How politics of country affect the share price of commercial bank in Nepal?

1.3 Objectives of the Study

The main objective of the study is to identify the firm specific factors and macro
economic variables affecting the share price of commercial bank of Nepal.
Specifically, it examines the firm specific factors like dividend per share, Earning per

14
Share, equity capital, Non performing loan. Investors require proper knowledge of
share price i.e. how it is formed, why does it fluctuate, what factor are responsible for
the determination 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, dividend policy and risk and return etc but sufficient researches
have not been done to provide core prospective on the determinants of 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 gives a better insight into the stock
price. Furthermore, this study is proposed to meet the following objectives;

i. To evaluate the factors affecting the share price of commercial banks in

Nepal
ii. To identify firm specific factors and macro economic factors affecting the
share price of commercial bank in Nepal.
iii. To determine the effect of earning per share on the stock price.
iv. To examine the effect of dividend per share on the stock price.
v. To analyze the market trends of MPS with financial indicators.
vi. To identify the effect of equity capital, return on assets, non performing loan
on market price of share.
vii. To examine the effect of macroeconomic variables like GDP, inflation and
interest rate in share price of commercial bank.
viii. To identify impact of political event on share price of commercial bank.

1.4. Importance of the Study

The purpose of the study is to investigate the relationship between the firm specific
and macroeconomic variables as determinants of market price per share in Nepal’s
banking sector. Specially, it examines the impact of earning per share, dividend per
share, price earnings ratio, size or equity capital, return on assets, GDP, inflation
and interest rate on market price per share. This study attempts to construct the
relation of MPS of the Nepalese commercial banks to the major financial indicators
like EPS, and DPS. The relation is hoped to show the status of Nepalese commercial
banks with respect to the determinants of share price. These findings may be
helpful to the potential investors to make the better investment decision.
Furthermore, it would be helpful to analyze the performance of commercial banks by
15
which it can boost up the Nepalese economy.

1.5 Research Hypotheses

The present study seeks to test the factors influencing stock prices of commercial
banks in Nepalese stock market. Stock price can change minute by minute due to
changes in the buying and selling transactions. The market price is used as dependent

variable in the present study. The study develops and tests following hypotheses:

Dividend per share:

Dividend per share (DPS) is the total dividends paid out over an entire year (including

interim dividends but not including special dividends) divided by the number of
outstanding ordinary shares issued. Modigliani and Miller (1958) states share price is

based upon its earnings; firm’s value is unrelated with dividend policy. Rashid and
Rahman (2008) and Zakaria et al. (2012) found significant positive relationship
between the dividend and share price. Based on it, this study develops the
following
hypothesis:

H1: There is a positive relationship between MPS and DPS.

Earnings per share

Earnings per share, also called net income per share, is a market prospect ratio that
measures the amount of net income earned per share of stock outstanding. Sharma
(2011) the study revealed that earning per share has significant impact on the
market
price of share. Bhatt & JK (2012) found that EPS and market value of equity share in

the Indian context are positively related. Based on it, this study develops the
following hypothesis:
H2: There is a positive relationship between MPS and EPS.

Paid up capital of firm/ Size

16
Size is an important financial measure used to represent the volume of the bank. The

size of the firm can be measured in many ways, for example, through turnover, paid-
up capital, capital employed, total assets, net sales, market capitalization, etc. In the
present study bank size is measured by total asset scaled in natural logarithm.
According to Almumani (2014) size is negatively related to market price of equities.

However, large bank generally offer better banking services opportunities to

customers and borrower than the smaller ones. The banks by virtue of their higher
size generally occupy a stronger and dominant position in the stock market. The
shares of large banks are actively traded in the stock exchange; they provide more
liquidity and marketability to the investors. Thus, the temptation to buy shares of
large banks leads to increase its market price of share. Chandra (1981) indicated that

size has significant positive impact on market price of share. Total assets or total net

assets are used to describe a firm's size or paid up capital of firm. The shares of large
companies are actively traded and they provide more liquidity and marketability to the
investors. Ramzan (2013) results show that size has a positive significant relationship
with the share price. Based on it, this study develops the following hypothesis:
H3: There is a positive relationship between MPS and Bank Size (equity capital)

Non Performing Loan

A loan on which the borrower is not making interest payments or repaying any
principal is called non performing loan. At what point the loan is classified as
nonperforming by the bank, and when it becomes bad debt, depends on local
regulations. NPL affects the stock prices of the commercial banks. The real stock
price of the commercial banks has a negative association with the levels of their
NPLs.
H4: There is negative relationship between MPS and NPL.

Price Earnings Ratio

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that
measures its current share price relative to its per-share earnings. Nickolson( 1960)
the study revealed that stocks with a low P/E ratio have a better investments

17
performance than high P/E stocks. Malhotra and Tandon (2013) indicated that firms’
book value, earning per share and price earnings ratios have a significant impact on
form’s stock price. Based on it, this study develops the following hypothesis:
H5: There is a positive relationship between MPS and P/E ratio.

Return on Assets:
The return on assets is a profitability ratio that measures the net income produced
by total assets during a period by comparing net income to the average total
assets. Nirmala et al (2011) used return on assets to measure the impact of
profitability on the share price and found positive relationship between them.
Based on it, the study develops the following hypothesis
H6: There is positive relationship between return on assets and
market price of share.

Gross Domestic Product growth

Nominal GDP is the total production of goods and services valued at current prices.
Nominal GDP is gross domestic product in current dollars. Shubiri (2010) examined
the relationship microeconomic factors with the stock price and found highly
positive significant relationship between market price of stock and gross domestic
product. Nisa & Nishat (2011) found that macroeconomic indicators GDP
growth has significant relationship with the stock prices. Based on it, this study
develops the following hypothesis:
H7: There is positive relationship between GDP and Share price.

Inflation
Inflation refers to the measures changes in the price level of a market basket of
consumer goods and services purchased by households. Malaolu et al. (2013)
revealed the effect of monetary authorities and policy makers should be more
concerned about the changes in inflation rate due to its significant negative
impact on stock price movements in Nigeria. Based on it, this study develops the
following hypothesis:
H8: There is positive relationship between MPS and inflation.

Interest Rate
Interest is the charge for the privilege of borrowing money, typically expressed
as annual percentage rate. Sapkota and Pradhan states that there is negative

18
relationship between interest rate and share price.
H9: There is negative relationship between MPS and interest rate.

Political Events
Share market tends to be influenced not only by macroeconomic fundamentals, but
also by the unexpected political events as well as policy changes. Several studies have

found the relationship between the political event and the stock market performance.
Jensen and Schmith (2005) estimated the impact of the four main Brazilian
presidential candidates on the mean and variance of the Brazilian stock market using
a number of time-series regressions. They argue that political events, such as
the election of a politician that is expected to enact “market-friendly” policies,
lead to increases in stock market returns while political events that are expected to
have a negative impact on the economy and specific firms lead to decreases in stock
market returns.
H10: There is relationship between MPS and Politics of country.

1.6 Operational Definitions and Assumptions

Market Price of Share
MPS is the annual closing market price per share of the commercial banks listed in
Nepal Stock market.

Dividend Per Share

Dividend per share (DPS) is the sum of declared dividends issued by a company for

every ordinary share outstanding. Dividend per share (DPS) used in the study is
defined as the total dividends paid out by a business, including interim dividends,
divided by the number of outstanding ordinary shares issued.

Earnings per Share

Earnings per share are measured as total earnings divided by total number of
share outstanding.

Capital
The value of equity capital is computed by estimating the current market value of
everything owned by the company from which the total of all liabilities is subtracted.

19
On the balance sheet of the company, equity capital is listed as stockholders' equity
or owners' equity. It is also called equity financing or share capital. Capital is
computed by adding paid up capital, reserves and retained earnings.

Price-Earnings Ratio
The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures

its current share price relative to its per-share earnings. The price-earnings ratio
used in the study is the ratio of market value per share to earnings per share.

Non Performance Loan

Non-performing loan refers to those unproductive assets of any firm that cannot be
converted into cash within specified time limit. It is the loans made by a bank or
financial company on which interest payments and principal repayments are not being

made on time.
Return on Assets
Return on assets (ROA) is an indicator of how profitable a company is relative to its

total assets. ROA gives an idea as to how efficient management is at using its assets
to generate earnings. ROA used in the study is calculated by dividing a
company's annual earnings by its total assets.

Gross Domestic Product Growth

Gross domestic product (GDP) is the monetary value of all the finished goods and
services produced within a country’s borders in a specific time period. GDP is usually
calculated on an annual basis. In this research study, real GDP at producer price is
taken to analyze the data.
Inflation
Inflation is defined as sustained increase in the general level of prices for goods
and services. Inflation used in the study is measured as an annual percentage
increase in price of goods and services.

Interest Rate
Interest income is usually taxable; the ordinary income tax rate applies to this form
of income. In a bank, the excess amount of interest earned on investments over

20
the amount paid out for deposits is referred to as net interest income.

1.7 Limitations of the Study

The limitations of this study are given below:
i. The study is based on sample of 10 commercial banks only.
ii. This research result focuses on the factors affecting the share price of
commercial banks only.
iii. This study has included five firm specific factors and three macroeconomic
variables as well as political environment affecting the share price.
iv. Lastly, this study is focused on certain factors that have significant
influence on market price of share of commercial banks.

CHAPTER II

LITERATURE REVIEW
2.1 Theoretical Review

2.1.1 Factors affecting the share price

Share prices change every day as a result of market forces. Share price changes
because of supply and demand. Share price is sensitive and affected by various
company specific factors and macro economic variables. Stocks are volatile and
can change in rapidly.
The various factors affecting the share price of companies are:

2.1.1.1 Company Specific factors

The firm internal factors affect the share price of the company. It includes dividend
per share, Earning per share, Capital structure of company, management team, non
performing loan, price earnings ratio, return on assets, leverage.

Dividend and Earning Per Share:

Dividend per Share and Earning per Share has significant impact on market price
of share. Investors invest in share market to enjoy return on their investment.
Kashmir (2010) states Earnings per Share (EPS) is a ratio to measure the success of
management in achieving profits for shareholders. A low ratio means that the
management has not managed to satisfy shareholders, in contrast with the high

21
ratio, hence increasing shareholder wealth in another sense, that a high rate of return.

Dividend is defined as that portion of the net earnings of the firm, which is distributed
to the shareholders either in the form of cash or stock, as per its dividend policy.
Dividend payments are usually part of company’s strategic policy to return a portion
of its profit to its shareholders. The dividend ratio provides information about the
financial strength and maturity of the company along with reflections about its
investor’s expectations. The dividend can be distributed either in cash or by
capitalization of profits as bonus shares. (Bhujel, 2013)

Investors in underdeveloped country like Nepal mostly look at the profitability of the
firm while purchasing equity shares from the secondary market. Since, dividend paid

to shareholders is one of the best indicators of profitability, it is generally believed

that dividend, plays crucial role in determining market price of the corporate share
(Khadka, 2012).

Paid up capital/Size of company

Size of company is another significant factor that affects the share price of
company.
Chandra (1981) indicated that size has significant positive impact on market price of

share. Total assets or total net assets are used to describe a firm's size or paid up
capital of firm. The shares of large companies are actively traded and they provide
more liquidity and marketability to the investors. Mostly large firms hire professional

and skilled manpower which leads to better performance of organization and in return

has good return. So, size of company affects the market price of share.

Non Performing Loan

A non performing loan (NPL) is the sum of borrowed money upon which
the debtor has not made his scheduled payments for at least 90 days. A nonperforming

loan is either in default or close to being in default. Once a loan is non performing, the

22
odds that it will be repaid in full are considered to be substantially lower. NPL
reduces the net profits of company which negatively impacts the share price of
commercial bank.
Price Earnings Ratio
The price earnings ratio is the ratio for valuing a company that measures its current
share price relative to its per share earnings.

Return on Assets (ROA)

Return on assets (ROA) is an indicator of how profitable a company is relative to its

total assets. ROA gives an idea as to how efficient management is at using its assets to

generate earnings. It is calculated by dividing a company's annual earnings by its total

assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on

investment".

2.1.1.2 Macroeconomic Variables

Gross Domestic Product Growth Rate
Gross domestic product (GDP) is the monetary value of all the finished goods and
services produced within a country’s borders in a specific time period. GDP is usually
calculated on an annual basis. In this research study, real GDP at producer price is
taken to analyze the data. (Investopedia, 2017)

Interest Rates
If a company borrows money to expand and improve its business, higher interest rates

will affect the cost of its debt. This can reduce company profits and the dividends it
pays shareholders. As a result, its share price may drop. And, in times of higher
interest rates, investments that pay interest tend to be more attractive to investors
than stocks.
Inflation
Inflation means higher consumer prices. This often slows sales and reduces profits.
Higher prices will also often lead to higher interest rates. Fisher (1930) examined

23
the nature that stock markets are independent of inflation expectations, implying
that prices and inflation should move in the same direction.
Politics
Share market tends to be influenced not only by macroeconomic fundamentals, but
also by the unexpected political events as well as policy changes. Political events,
such as the election of a politician that is expected to enact “market-friendly” policies,

lead to increases in stock market returns while political events that are expected to
have a negative impact on the economy and specific firms lead to decreases in
stock market returns.

2.1.2 Theoretical Foundation of Determinants of Share Price

2.1.2.1 Capital Assets Pricing Model
The capital asset pricing model (CAPM) is a model that describes the relationship
between systematic risk and expected return for assets, particularly stocks. CAPM is

widely used throughout finance for the pricing of risky securities, generating expected

returns for assets given the risk of those assets and calculating costs of capital.
The formula for calculating the expected return of an asset given its risk is as follows:

The general idea behind CAPM is that investors need to be compensated in two
ways: time value of money and risk. The time value of money is represented by the
risk-free (rf) rate in the formula and compensates the investors for placing money
in any investment over a period of time. The risk-free rate is customarily the yield
on government bonds like U.S. Treasuries.
The other half of the CAPM formula represents risk and calculates the amount of
compensation the investor needs for taking on additional risk. This is calculated by
taking a risk measure (beta) that compares the returns of the asset to the market over a

24
period of time and to the market premium (Rm-rf): the return of the market in
excess of the risk-free rate. Beta reflects how risky an asset is compared to overall
market risk and is a function of the volatility of the asset and the market as well
as the correlation between the two. For stocks, the market is usually represented as
the S&P 500 but can be represented by more robust indexes as well.
The CAPM model says that the expected return of a security or a portfolio equals
the rate on a risk-free security plus a risk premium. If this expected return does not
meet or beat the required return, then the investment should not be undertaken.

2.1.2.2 Efficient Market Hypothesis

The efficient market hypothesis (EMH) is an investment theory that states it is
impossible to "beat the market" because stock market efficiency causes existing
share prices to always incorporate and reflect all relevant information. According to
the EMH, stocks always trade at their fair value on stock exchanges, making it
impossible for investors to either purchase undervalued stocks or sell stocks for
inflated prices. As such, it should be impossible to outperform the overall market
through expert stock selection or market timing, and the only way an investor can
possibly obtain higher return is by purchasing riskier investments. Although it is a
cornerstone of modern financial theory, the EMH is highly controversial and
often disputed. Believers argue it is pointless to search for undervalued stocks or
to try to predict trends in the market through either fundamental or technical
analysis. Proponents of the EMH conclude that, because of the randomness of the
market, investors could do better by investing in a low cost passive portfolio.
Market efficiency, as reflected by the Efficient Market Hypothesis (EMH), may exist
at three levels - the weak form, the semi-strong form and the strong form.
 The weak form of EMH states that the current share prices fully reflect
all information contained in the past price movements. If this level of
efficiency holds, there is no value in trying to predict future price
movements by analyzing trend in past price movements. The stock price
movements will not follow any pattern; this is known as random walk.
Therefore, the weak form of EMH argues that the trend offers no clues as to
tomorrow's price - the stock market has no memory. The stock prices will
fluctuate more or less randomly, any departure from randomness being
too expensive to determine.

25
  The semi-strong form of the EMH states that the current market prices reflect
not only all past price movements, but all publicly available information.
There is no benefit in analyzing existing information, such as that given in
published accounts, after the information has been released; the stock
market has already captured this information in the current share price. Only
those with the access to information prior to its general release can earn
superior or abnormal returns over the normal return expected for the
associated degree of risk.
 The strong form of the EMH goes beyond the previous two by stating that
current market prices will reflect all relevant information- evenly if
privately held. The market prices reflect the true or intrinsic value of the
share based on the underlying future cash flows. The implications of such a
level of market efficiency are clear and no one can consistently beat the
market i.e. earn abnormal returns.

In the real world, the strong form of EMH does not exist. The stock markets in most
of the developed countries appear in the semi-strong form while the stock markets in
the developing countries seem to be in the weak form of the EMH. For the later, the
stock prices in developing markets thus follow a random walk.

2.1.2.3 Dividend Discount Model

The dividend discount model postulates that the current share price equivalents the
present value of future cash flows, which depends on the growth of a company. The
dividend discount model (DDM) is a procedure for valuing the price of a stock by
using the predicted dividends and discounting them back to the present value.
As a company’s growth depends on domestic macroeconomic condition as well as its
major trading partners, the co-movement of macroeconomic variables across
countries may influence the co-movement of stock prices in those countries.
Consequently, apart from the traditional variables namely money supply, interest
rate, inflation, and reserves, the exchange rate is also one of the macroeconomic
factors that could influence stock prices especially in the developed countries. (Staff,
2017)

2.1.2.4 Arbitrage Pricing Model

Arbitrage pricing theory is an asset pricing model based on the idea that an asset's

26
returns can be predicted using the relationship between that asset and many
common risk factors. Created in 1976 by Stephen Ross, this theory predicts a
relationship between the returns of a portfolio and the returns of a single asset
through a linear combination of many independent macroeconomic variables.
APT states that the expected return on a stock or other security must adhere to the
following relationship:
Expected return = r(f) + b(1) x rp (1) + b(2) x rp(2) + ... + b(n) x rp(n)

Where,
r(f) = the risk-free interest rate
b = the sensitivity of the asset to the particular factor
rp = the risk premium associated with the particular factor
The number of factors will range depending on the analysis. There can be a few or
dozens; it depends on which factors an analyst chooses for the analysis. In addition,
the exact factors do not have to be the same across analyses.

2.1.3 Banking Sector and Market Price

There are four types of Banks and Financial Institutions; Class A (Commercial
Banks), Class B (Development Banks), Class C (Finance Company) and Class D
(Micro-credit Financial Institutions) licensed by the Nepal Rastra Bank. Class A
institutions (commercial banks) are reporting their capital adequacy requirement in
accordance with the new capital adequacy framework under Basel II issued through

Directive No.1 of the Unified Directives. The initiation of formal banking system
in Nepal commenced with the establishment in 1937 of Nepal Bank Limited (NBL),
the first Nepalese commercial bank. The country's central bank, Nepal Rastra
Bank
(NRB) was established in 1956 by Act of 1955, after nearly two decades of NBL
having been in existence. A decade after the establishment of NRB, Rastriya
Banijya Bank (RBB), a commercial bank under the ownership of His Majesty’s
Government of Nepal (HMG/N) was established. Thereafter, HMG/N adopted open
and liberalized policies in the mid 1980s reflected by the structural adjustment
process, which included privatization, tariff adjustments, liberalization of industrial
licensing, easing of terms of foreign investment and more liberal trade and foreign

27
exchange regime was initiated. With the adoption of liberalization policy, there
has been rapid development of the domestic financial system both in terms of
number of financial institutions and as ratio of financial assets to the GDP. As of July
2005, the number of commercial banks has reached 17 and their branches
numbered 375. A total of 60 finance companies and other Development Banks and
numerous credit cooperatives have also been established. Total financial assets in
2004/2005 reached around 54.09 percent of GDP and the M2/GDP ratio, which
shows the financial sector development or financial deepening increased from in 12.4
percent in 1975 to 50.9 percent in 2000.
In the context of banking development, the 1980s saw a major structural change in
financial sector policies, regulations and institutional developments.
HMG/N emphasized the role of the private sector for the investment in the financial
sector. The financial sector liberalization, started already in the early eighties
with the liberalization of the interest rates, encompassed further deregulation of
interest rates, relaxation of entry barriers for domestic and foreign banks,
restructuring of public sector commercial banks and withdrawal of central bank
control over their portfolio management (Acharya et al, 2003). These policies
opened the doors for foreigners to enter into banking sector under joint venture.
Consequently, the third commercial bank in Nepal, or the first foreign joint venture
bank, was set up as Nepal Arab Bank Ltd. (now called as NABIL Bank Ltd) in 1984.
Thereafter, two foreign joint venture banks, Nepal Indosuez Bank Ltd. (now called as
Nepal Investment Bank) and Nepal Grindlays Bank Ltd (now called as Standard
Chartered Bank Nepal Ltd.) was established in 1986 and 1987 respectively.
Thereafter, another 12 commercial banks have been established within the period
of 12 years. Nepalese banking system has now a wide geographic reach and
institutional diversification. Although, Nepalese financial sector is dynamic, a lot
of scope for development of this sector exists. This is because the banking and
non-banking sectors have not been able to capture all the potentialities of business
till this time. It is evident from the Rural Credit Survey Report that the majority of
rural credit is supplied by the unorganized sector at a very high cost - perhaps being
at two or three time of the formal sector - suggesting that the financial sector is still
in the path of gradual development. Overdue loans and inefficiency of the older and
the larger of commercial banks have aggravated and have been made to compete with

28
the new trim banks with no rural operations. Also, the commercial banks, domestic or
joint venture have shown little innovation and positive attitude in identifying new
areas of saving and investment opportunities.
Nepal Rastra Bank, the central monetary authority, has directed banks and financial
institutions to raise minimum paid-up capital by up to four times to a whopping Rs 8
billion. At present there are 27 commercial banks in Nepal.

2.2 Review of Empirical Studies

Stock price are affected by many factors like company’s internal factors as well as
macro economic variables of the country.

2.2.1 Firm Specific Factors and Share Price

2.2.1.1 International Studies
Wruck (1987) studies the association between a firm’s stock returns and subsequent
top management changes. Consistent with internal monitoring of management, there
is inverse relation between probability of management change and a firm’s specific
share performance. This relation can result from monitoring by the board, other top
managers or blockholders. However, unless share performance is extremely good
or bad, logit models have no predictive ability. No average stock price reaction
is detected at announcement of a top management change.
Jayshree and Radhika (2011) studied the trends in non-performing assets of Indian
banks and make a comparison of public sector banks, old Private sector banks, new
private sector banks and foreign banks. This study showed there was overall
decline in the NPA’s. The article further attempted to establish relationship between
net-profit and NPA’s and total advances. The study observed positive correlation
between NPA’s and total advances. This shows that with increase in total advances
NPA’s will increase. The impact analyses proved that NPA’s had negative impact on
net-profit whereas for NPA’s and total advances there was positive impact. The
study finally observed that banks were performing well in managing there
NPA’s. The main reasons could be attributed to prudential norms and RBI
guidelines, securitizations and changes in law.
Srinivasan (2012) examined the fundamental determinants of share price in India. The

study employed panel data consisting of annual time series data over the period

29
2006-2011 and cross-section data pertaining to 6 major sectors of the Indian
economy, namely, Heavy and Manufacturing, Pharmaceutical, Energy, IT
and ITES, Infrastructure, and Banking. The panel data techniques, viz. Fixed
Effects model and Random Effects model have been employed to investigate the
objective. The empirical results revealed that the dividend per share has a negative
and significant impact on the share price of manufacturing, pharmaceutical,
energy, and infrastructure sectors. Earnings per share and price-earnings ratio are
being the crucial determinants of share prices of manufacturing, pharmaceutical
sector, energy, infrastructure, and commercial banking sectors. Size is being a
significant factor in determining the share prices of all sectors under consideration
except manufacturing. Moreover, the book value per share positively
influences the share prices of pharmaceutical, energy, IT & ITES, and
Infrastructure.
Uwuigbe, Olowe, Olusegun, and Godswill (2012) examined the determinants of share

prices in the Nigerian stock exchange market. A total of 30 listed firms in the
Nigerian stock exchange market were selected and analyzed for the study using the
judgmental sampling technique. Also, the Nigerian stock exchange fact book and
the corporate annual reports for the period 2006- 2010 were used for the study. The
paper basically modeled the effects of financial performance, dividend payout, and
financial leverage on the share price of listed firms operating in the Nigerian stock
exchange market using the regression analysis method. The study found a significant
positive relationship between firms’ financial performance and the market value
of share prices of the listed firms in Nigeria. Consequently, the paper concludes
that firms’ financial performance, dividend payouts, and financial leverage
are strong determinants of the market value of share prices in Nigeria.
Malhotra & Tandon (2013) attempted to determine the factors that influence stock
prices in the context of National Stock Exchange (NSE) of 100 companies. A sample

of 95 companies was selected for the period 2007-12 and linear regression model
was used. The results indicated that firms’ book value, earning per share, and
price-earnings ratio are having a significant positive association with firm’s stock
price while dividend yield is having a significant inverse association with the

30
market price of the firm’s stock.
Almumani(2014) attempted to identify the quantitative factors that influence share
prices for the listed banks in ASE over the period 2005-2011.The study has chosen
dividend per share, earning per share, book value per share, dividend payout, price
earnings ratio, and size in terms of total assets as possible determinants of share prices

and employs the regression and correlation analysis to identify the share price
determinants. Based on the results of the empirical analysis, the variables earning per

share, book value per share, price earnings ratio, and size are significant determinants
of share prices for all the banks under consideration. Hence, the present study
confirms that the study of financial factors prove to be beneficial for the investors in
Jordan , as these factors posses strong explanatory power and hence, can be used to
make accurate future forecasts of stock prices.
Balaputhiran (2014), the study found the relationship between firm performance and

earnings per share. The earnings per share was taken as a dependent variable while
firm performance, net profit and return on assets were used as independent
variables. The data of 7 listed banks covering from 2008 to 2012 was taken as a
sample. Correlation was used being a statistical tool to find out the relationship
between firm performance and EPS, while simple regression was applied to evaluate
the impact. The result found no significant relationship between EPS & firm
performance and both hypothesis were rejected.
Earnings per share are one of the essential variables that affect the profitability.
Increase in EPS will lead to increase equity & will also affect market value of
share. The increase in profitability will lead the demand of that company shares,
Muhammad.Z.J, Ghulam.S, Naqvi. H, Nadeem. I & Khan. M (2014). Thirteen cement
companies listed on (SECP) were selected as a sample for the analysis of secondary
data for the period of five years. The data was analyzed by using SPSS. The
result concluded that Earning per Share (EPS) significantly impact the market value
of share.
Sharif et. al(2015) analyzes a panel data set of 41 companies listed in the Bahrain
stock exchange for the period 2006-2010. The year 2006 is used as the first year of

31
data collection as most of the companies were incorporated in 2005. Since the Bahrain
bourse witnessed a turbulent period during the first half of 2010 due to political
unrests causing 25.5% slump in the aggregate value of traded shares in the first half of
2010 and 7.59% drop in the Global Bahraini Index in the following year, the post-
2010 period was deliberately ignored in this study Eight firm specific variables
namely return on equity, book value per share, earnings per share, dividend per
share, dividend yield, price earnings, debt to assets and controlled by firm size, have
been studied to infer their impact on market price of shares in the respective market.
The results indicate that the variables return on equity, book value per share,
dividend per share, dividend yield, price earnings, and firm size are significant
determinants of share prices in the Bahrain market.
Nirmala et al. revealed that dividend, price earnings ratio and leverage are
significant determinants of share prices for all sectors under consideration where
dividend and price earnings ratio has a positive relation to share price

2.2.1.2 Nepalese Studies

Bhattarai (2014) examines the determinants of share price of commercial banks listed
on the Nepal Stock Exchange Limited over the period of 2006 to 2014. Data were
sourced from the annual reports of the sampled banks and analyzed using regression
model. The results revealed that earning per share and price- earnings ratios have
the significant positive association with share price while dividend yield showed
the significant inverse association with share price. The major conclusion of the
study is that dividend yield, earning per share and price-earnings ratio are the most
influencing factors in determining share price in Nepalese commercial banks.
The study of Sharma (2011) examined the empirical relationship between equity share

prices and explanatory variables such as: book value per share, dividend per share,
earning per share, price earnings ratio, dividend yield, dividend payout, size in terms
of sale, and net worth for the period 1993-94 to 2008-09. The results revealed that
earning per share, dividend per share, and book value per share has significant
impact on the market price of share. Furthermore, results of the study indicated that
dividend per share and earnings per share being the strongest determinants of market
price, so the results of the study supports liberal dividend policy and suggests
companies to pay regular dividends.

32
Shrestha (2011) attempt to ascertain the determinants of nonperforming loans (NPL)

in the Nepalese commercial banking sector using a descriptive statistics, trend and
one factor econometric model. The study has selected 18 Nepal commercial banks by

using stratified sampling method, and found the aggregate values of ratio that
measures the banks’ health. The results show that aggregate NPL of commercial
banks is in decreasing trend and the model is consistent with priori of the NPL to
its stock price. This indicates that every rupee appreciation in the NPL brings about
stock price decrease by 0.528 rupee. The study has shown an increasing trend of the
total performing loan to total deposit ratio in the industry, while NPL is on the
decline.
Joshi (2012) examines the impact of dividends on stock price in the context of Nepal.
A majority of earlier studies conducted in developed countries show that dividend has

a strong effect than retained earnings. The study examines whether this is
consistent in the context of Nepal (or not) and the implication particularly to the
banking and non-banking sector. To achieve the objective of the study, a descriptive
and analytical research design has been administered. The secondary data are
used to test this impact. In order to examine the impact of dividends on stock
prices, a multivariate linear regression analysis has been implied in which current
market stock price is taken as a dependent variable and four other variables namely
Dividend Per Share (DPS), Retained Earnings Per Share (REPS), Lagged Price
Earnings Ratio (P/E ratio) and Lagged Market Price Per Share (MPS) as the
explanatory variables. This attempt has been made to test the dividends retained
earning hypothesis and to examine the estimated relationship over the period of
time. The overall conclusion drawn in this study reveals that, the impact of
dividends is more pronounced than that of retained earnings in the context of Nepal.
Dividend has a significant effect on market stock price in both banking and non-
banking sector.
Pradhan and Dahal(2016) using data of 14 banks listed in NEPSE for the period
2002/03-2013/14 shows that firm specific variables like earnings per share, divided
per share, price earnings ratio, book value per share, return on assets and size are the

33
major determining stock price in context of commercial banks in Nepal. Among the

variables, size is found to be the most important determining variable that affects the
share price. It means, larger the firm size, higher would be the stock price. Among the

macro economic variables such as gross domestic product, inflation and money
supply, gross domestic product is a major variable that affect the share price.

2.2.2 Macroeconomic Variables and Share Price

2.2.2.1 International Studies
Al-Qenae et al. (2002) analyzed the impact of the effect of earnings and other
macroeconomic variables on the stock prices of Kuwait Stock Exchange during the
period 1981-1997. The macroeconomic variables examined were gross national
product (GNP), interest rate, and inflation. The study found that earnings and GNP
were positively related to stock prices (Midani, 2001) while inflation and interest rate

showed a significant negative impact on the stock prices in Kuwait. The reason
attributed for the effect in Kuwaiti shares is that the Kuwait share market is highly
responsive to the sentiments of public and external events. This suggests the
extreme vigilance and scrutiny of external factors by the people of Kuwait while
basing their investment decisions. The United Arab Emirates (UAE) economy was
also studied from 1995-2005 to infer the most prominent factors affecting stock
price in the respective market (Al-Tamimi, Alwan, & Rahman, 2011). The ordinary
least squares regression revealed that earnings per share had a significant impact on
stock prices in the UAE followed by money supply and GDP. It suggests that
investors rely on the earnings per share to judge the efficiency and credibility of the
company, therefore it is recommended to adopt those steps which can improve the
earnings per share of firms.
Maghayereh (2003) investigated the long run relationship between the Jordanian stock
prices and selected macroeconomic variables by using Johansen’s methodology and
monthly time series data over for the period of January 1987 to December 2000. This
study identifies exports, foreign reserves, interest rates, inflation, and industrial
production as the major macroeconomic variables influencing stock prices. The
34
results illustrate that the stock price index is co-integrated with exports, foreign
reserves, interest rates, inflation, and industrial production. The results also show that
investors’ perceptions of stock price movements in the Amman Stock Exchange are
highly sensitive to the international environment especially to the economic and
political environments in the neighboring Arab countries.
Jensen and Schmith (2005) estimated the impact of the four main Brazilian
presidential candidates on the mean and variance of the Brazilian stock market using a

number of time-series regressions. They argue that political events, such as the
election of a politician that is expected to enact “market-friendly” policies, lead to
increases in stock market returns while political events that are expected to have a
negative impact on the economy and specific firms lead to decreases in stock market

returns.
Hsing (2011) examined the macroeconomic determinants of Hungary’s stock market

index based on a quarterly sample during 2000.Q1 - 2010.Q2. The study investigated

that Hungary’s stock market index has a positive relationship with real GDP, the
ratio of the government debt to GDP, the nominal effective exchange rate and the
German stock market index, a negative relationship with the real interest rate, the
expected inflation rate and the government bond yield in the euro area, and a
quadratic relationship with real M2 money supply.
Scott and Arias (2011) studied performance of five largest banks in United States.
They proved that GDP did not directly affect the profit level of U.S banking sector.
Hoffmann (2011) used GMM and pooled OLS estimation approach to study US
banks. The final result of both regression models indicates no considerable
relationship. Sufian (2011) analyzed 11-29 Korean commercial banks during year
1992-2003. Linear regression results reveal negative impact of GDP on ROA, but
positive impact of inflation. An empirical study by Damena (2011), on the
profitability determinants of Ethiopian commercial banks uses 10 years balance sheet

data of 7 leading banks confirms positive affect of GDP, inflation and interest rate.

35
Likewise, Davydenko (2011) used fixed effects estimation technique and proved
that both GDP and Inflation have a positive relationship with ROA of Ukrainian
banks.
In case of Namibia, Eita (2012), also using quarterly data covering the period of
1998Q1 to 2009Q4 based on a VAR model, revealed that Namibian stock market
prices are mainly determined by economic activity, interest rates, inflation, money
supply and exchange rates. The study concluded that an increase in economic activity
and the money supply increases stock market prices, while increases in inflation and
interest rates decrease stock prices. The results suggest that equities are not a hedge
against inflation in Namibia, and contractionary monetary policy generally
depresses stock prices.

2.2.2.2 Nepalese Studies

Dangol (2008) studied the reaction of Nepalese stock market to announcements of
unanticipated political events using the event analysis methodology. His analysis
covered the period from 2001 to 2006. He found that good-news (bad news)
political announcements generate positive (negative) abnormal returns in the post-
event period. This finding suggests that there is a strong linkage between political
uncertainty and common stock returns in Nepal.

Dangol (2010) examined the random walk behaviour on daily market returns of the
Nepal Stock Exchange for the period between July 2000 and January 2010. He found

that the Nepalese stock market does not show the characteristics of random walk
and thus, is not weak form efficient. This means news affects the movement of the
stock index. Shrestha and Subedi (2014) empirically examine the determinants of
the stock index (NEPSE) in Nepal using monthly data for the period of mid-August
2000 to mid-July 2014. In order to incorporate the major changes in politics and
NRB’s policy on lending against collateral of shares, two dummy variables have
also been used. The correlation analysis shows the existence of the significant
relationship between the NEPSE index and macro variables chosen for the study
such as Consumer Price Index, Broad Money and Treasury Bill Rate. Time
series properties of selected variables have been examined. Moreover, empirical
results obtained from OLS estimations of behavioral equations reveal that the
NEPSE index is found to respond positively to inflation and broad money growth,

36
and negatively to treasury bills rate. This suggests that, in Nepal, share investors
seem to take equities as a hedge against inflation and consider stock as an
alternative financial instrument. Further, the lowering borrowing costs stimulate
the investment in the Nepalese stock market. More importantly, stock market has
been found to respond significantly to changes in political environment and the
policy of NRB.

Sapkota and Pradhan (2016) examine the determinants of share price of Nepalese
Commercial banks in terms with earnings per share, dividend per
share, return on assets, price earnings ratio and gross domestic products. It shows
that there is positive relation of market price per share with earning per share,
dividend per share, returns on assets, price earnings ratio and gross domestic
product. Similarly, it states that there is negative relationship of market price per
share with leverage, inflation and interest rate.

From the study of past findings, various firm specific factors as well as macro
economic variables affect the share price of commercial banks. Mainly, firm
specific factors like EPS, DPS, P/E ratio and size are significant determinants of
share price. NPA has negative impact on net profit and share price of commercial
banks. Similarly, macro economic variables like GDP, interest rate, inflation rate,
exchange rate, money supply are significant variables that are taken under past
studies.
Economic activity, interest rate, inflation, money supply and exchange rates affect the

share price of company. The study shows positive relationship between GDP and
share price and negative relationship of share price among interest rate, expected
inflation rate. Political events of country also affects the share price of companies,
such as the election of a politician that is expected to enact “market-friendly” policies,

lead to increases in stock market returns while political events that are expected to
have a negative impact on the economy and specific firms lead to decreases in
stock market returns. The finding suggests that there is a strong linkage between
political uncertainty and common stock returns in Nepal.

37
2.3 Research Gap
From the above studies and past finding, mostly researcher have used firm specific
factors like EPS, DPS, book value of share, P/E ratio and Size . Past finding have
limited their findings in the variables like EPS, DPS, book value of share, P/E ratio
and size. In domestic context, researchers have ignored the firm specific factors
like impact of NPA, management team, leverage.
During review of past articles, researchers have conducted articles differently in
firm specific factors and macroeconomic variables. Most articles didn’t included
both firm specific variables and macro economic variables affecting the share
price of commercial bank in an individual paper. The papers either focused in firm
specific variables or macro economic variables only.
So, it is believed that this study will focus on both firm specific factors and macro
economic variables affecting the share price of commercial bank in Nepal. The
study has included the additional firm specific variables like NPA, Return on Assets
which are not included by many researchers in their paper.
Political environment and politics is an important factor which affects the share price
of companies. Past research has not included politics and political environment in
their studies. The paper will present “Determinants of The Share Price: Evidence
from Nepalese Commercial Bank”. This study is comprehensive as it includes firm
specific variables and macro economic variables as well as political environment
affecting the share price of commercial banks in Nepal.

2.3 Conceptual Framework

The conceptual frame work is designed to understand the factor that may affect the
market price per share. The literature review strongly supports the movement of
stock price as a consequence of firm specific factors and macroeconomic variables.
In view of theory and major empirical evidences, it is expected that the market price
per share of commercial banks may be influenced by firms’ specific factors like
dividend per share, earnings per share, paid up capital, management team, Non
performing Loan, price earnings ratio, return from assets and leverage of the bank.
Moreover from the study of past findings, the external factors or macroeconomic
variables also affects the share price of commercial banks. Share price is strongly
influenced by GDP, interest rate, inflation and politics of the country. Countries
political stability, rules and regulation affects the share price of commercial banks.
38
 The market share price of commercial bank is dependent variable. Share price is
affected by various firms’ specific factors and macroeconomic variables. The
independent variables which affect share price are DPS, EPS, size, management team,
Non Performing Loan, Price earnings ratio, return on assets, leverage, GDP,
interest, inflation and politics of the country.

The conceptual framework of determinants of share price can be shown in the figure:

Dependent Variable Independent

Variable
Bank Specific Factors

 DPS
 EPS
 Paid up Capital
 Non – Performing
Loan
 Price Earnings Ratio
 Return on Assets

Market Price per Share

Macro Economic Variables

 GDP
 Inflation
 Interest Rate

Fig 2.3.1: Conceptual Framework

Political Situation
39
 Measured by
Dummy Variable
40
 CHAPTER III

METHODOLOGY

This chapter aims to present a basic framework of the research work. The overall
approach to the research is presented in this chapter. This chapter contains the
research design, sample size, data collection procedure, data processing tools and
techniques, variables etc.

3.1 Research Plan and Design

Research design is the logical and systematic planning and directing a piece of
research. It serves as a framework for the study, guiding the collection and analysis of
the data, the research instruments to be utilized, and the sampling plan to be followed.
In this study, descriptive and analytical research design is adopted.
The main objective of this study is to examine the relationship of MPS with bank
specific factors like EPS, DPS, Paid up capital, NPL, P/E ratio, ROA and macro
economic variables like GDP growth, interest rate, inflation rate and politics. The
research design adopted in this study is causal comparative type as it deals with the
relationship of firms specific and macroeconomic variables with market price per
share.

3.2 Description of Sample

The total variables/observation is simply called population. There are 28
commercial banks (including government owned, private and joint ventures) at
present and only ten banks are taken as sample of the study. The process of selecting
the sample out of the population is called sampling. In this study, the population
size is 28 and the sample size is 10. The sample is selected on the basis of joint
ventures bank and non joint ventures bank. Stratified random sampling has been used
for sample selection.
 Table 3.2.1: Table showing Sample Banks

S.No Banks Study period Observations

Joint Venture Banks
1 Everest Bank 2004-201 12
2 Himalayan bank 2004-2015 12
3 Nabil bank 2004-2015 12
4 Nepal SBI 2004-2015 12
5 Standard Chartered 2004-2015 12
bank
Non-Joint

Venture
Banks
6 Kumari Bank 2004-2015 12
7 Laxmi Bank 2004-2015 12
8 Macchapuchre Bank 2004-2015 12
9 Siddhartha Bank 2004-2015 12
10 Nepal Investment Bank 2004-2015 12
Source: NRB Report, 2016

3.3 Instrumentation
Instrumentation is the tools used for data collection and its analysis. The study is
totally based on secondary data. Thus the NRB website and annual report of
commercial banks was the main instruments of data collection for the purpose of
study.

3.4 Data Collection Procedure and Time Frame

This study is based on the secondary data which were gathered from 10
commercials banks in Nepal. The main sources of data are banking and
financial statistics published by Nepal Rastra Bank, annual report of different
sample banks, supervision report of Nepal Rastra Bank and annual reports of
concerned banks. In addition to these, different published articles, report, book,
journal, and graduate research project are also analyzed. The data were collected on

market price per share, earnings per share, divided per share, paid up capital,

42
management team, Non performing Loan, price earnings ratio, return on assets,
leverage, Gross domestic product, inflation, interest rate and politics.

The time frame required for the entire survey period is shown as below:

Activities/Week 1-3 week 4-5 week 6-8 week 8-10 week

Data Collection

Data Coding

Data analysis and Interpretation

Report Generation
Table no 3.4.1: Time Frame

The chart shows the time frame for the entire research process. Data Collection
process will take weeks. Similarly, Data Coding, Data Analysis & Interpretation
and Report Generation will take 2 weeks respectively. An aggregate of 10 weeks’
time period has been separated for the research process.

3.5 Data Analysis Tools

Data analysis is an important stage of the research process. The purpose of analyzing
the data is to change it from an unprocessed form to an understandable presentation.
The analysis of data consists of organizing, tabulating, performing statistical analysis
and drawing inferences.
The collected data has been analyzed and processed by the help of descriptive
statistical tools depending on the nature and requirement of the collected information

like line graph. The essential tables, charts, graphs have been presented to make the
analysis simple and easy to understand. Computer software like MS-Excel and
SPSS Version 23 software was used to analyze the collected data.
The collected data were coded and entered into SPSS and excel worksheet. Various
tools such as descriptive statistics such as mean, standard deviation and coefficient of
variation along with charts have been used. Independent sampling testing, Co-
relation tests and regression model has been used to identify association and relation
among the variables.

43
3.6 Data Analysis Plan
Data collected should be analyzed using proper tools and techniques to get logical
conclusion. Data collected leads to logical conclusion only if proper tools and
techniques are used. Various Statistical and financial tools have used to analyze the
data. The tools and techniques that are used to analyzed data are:
i. Average (Mean)
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, which is most 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,
Arithmetic Mean (AM) is given by, X=ΣX/n

Where,
X = Arithmetic Mean

ΣX = Sum of all the values of the variable X n = Number of observations

ii. 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.
Mathematically,

iii. Coefficient of Variation

A coefficient of variation (CV) is a statistical measure of the dispersion of data
points in a data series around the mean. It is calculated as follows: (standard
deviation) / (expected value). The coefficient of variation represents the ratio of
the standard deviation to the mean, and it is a useful statistic for comparing the

44
degree of variation from one data series to another, even if the means are drastically
different from one another. It is calculated as follows:
Coefficient of Variation=Standard Deviation/ Mean *100%

iv. Minimum and Maximum

The maximum and minimum, also called the largest observation, and smallest
observation, are the values of the greatest and least elements of a sample. They are
basic summary statistics, used in descriptive statistics. The minimum and the
maximum value are the first and last order statistics respectively for a sample size
of n.
v. Hypothesis Testing
A hypothesis test is a statistical test that is used to determine whether there is enough

evidence in a sample of data to infer that a certain condition is true for the entire
population.
A hypothesis test examines two opposing hypotheses about a population: the null
hypothesis and the alternative hypothesis. The null hypothesis is the statement being

tested. Usually the null hypothesis is a statement of "no effect" or "no difference".
The alternative hypothesis is the statement you want to be able to conclude is true.
Based on the sample data, the test determines whether to reject the null hypothesis.
You use a p-value, to make the determination. If the p-value is less than or equal to
the level of significance, which is a cut-off point that you define, then you can reject

the null hypothesis.

vi. Correlation Test:
Correlation between sets of data is a measure of how well they are related. The most

common measure of correlation in stats is the Pearson Correlation. The full name is
the Pearson Product Moment Correlation or PPMC. It shows the linear relationship
between two sets of data.
vii. Multiple Regression Model
Multiple regression is an extension of simple linear regression. It is used to predict the

45
value of a variable based on the value of two or more other variables. The variable
that we want to predict is called the dependent variable (or sometimes, the
outcome,
target or criterion variable). The variables that are used to predict the value of the
dependent variable are called the independent variables (or sometimes, the
predictor,
explanatory or regressor variables). Multiple regression also allows to determine the

overall fit (variance explained) of the model and the relative contribution of each of
the predictors to the total variance explained (Laerd Statistics, 2017).

46
 CHAPTER IV

OBSERVATION AND ANALYSIS

This chapter contains the analysis, discussion and interpretation of the secondary data.
The collected data were analyzed with the help of Statistical methods like MS
EXCEL, Statistical Packages for Social Sciences (SPSS) version 23 and presented
with the help of tabulation and various graphs and figures. This section deals with;
mean and standard deviation analysis of market price of share, dividend per share,
earning per share and Price earnings ratio of the commercial banks. Another analysis
deals with descriptive analysis by using the statistical tools like mean, standard
deviation, maximum and minimum. Hypothesis testing is also done to examine the
relationship between independent and dependent variables in the study using
independent Sample T Test between average value of variables between joint and non
joint venture banks and also Pearson Correlation test and Multiple regression model
has been performed for reliability analysis.

4.1 Mean and Standard Deviation Analysis

4.1.1 Descriptive Analysis of Market Price of Commercial Banks
The table 4.1.1 shows mean and standard deviation analysis of market price per share of
aggregate sample commercial banks and joint and non joint venture banks.
Table 4.1.1: Descriptive Statistics of MPS of Commercial Banks
Joint Ventures Bank Non joint venture bank Aggregate Banks

Year Mean S.D C.V Mean S.D C.V Mean S.D C.V

2003/04 914.4 530.72 58.72 270.25 359.55 133.04 592.33 445.14 95.88
2004/05 1195 764.76 64 434 481.86 111.03 814.5 623.31 87.52
2005/06 1821.2 1242.03 68.2 644 608.16 94.43 1232.6 925.10 81.32
2006/07 3259.2 2092.61 64.21 1073.6 773.64 72.06 2166.4 1433.13 68.14
2007/08 3745.6 2254.99 60.2 1176.2 156.07 13.27 2460.9 1205.53 36.74
2008/09 3405 1929.36 56.66 777.4 259.57 33.39 2091.2 1094.47 45.03
2009/10 1770 1077.34 60.8 455.8 108.4 23.79 1112.9 592.87 42.30
2010/11 1057.2 516.2 48.83 304 137.83 45.34 680.6 327.02 47.09
 2011/12 1095 493.46 45.07 363.6 254.1 69.88 729.3 373.78 57.48
2012/13 1355.2 540.27 39.87 406.4 312.28 76.84 880.8 426.28 58.36
2013/14 2037.2 859.61 42.2 642.8 112.44 17.49 1340 486.03 29.85
2014/15 1534.6 630.58 41.09 612.4 268.61 43.86 1073.5 449.60 42.48

This is the table showing mean, standard deviation and coefficient of variation of
market price of shares of joint ventures bank, non joint venture banks and aggregate
sample banks. Here, data are collected from year 2003 to 2015. Five joint ventures
bank are taken as sample. They are Everest bank, Himalayan bank, Nabil bank, Nepal
SBI bank and Standard Chartered Bank. The mean of MPS is calculated every year.
The average MPS is highest in 2007/08 i.e. Rs 3745.6 and the average MPS is lowest in
2003/04 i.e Rs. 914.4.The deviation among MPS is highest in 2007/08 i.e 2254.99 and
the deviation among MPS is lowest in 2010/2011 i.e 516.19. Lower the standard
deviation represents less heterogeneity among the variables. The degree of variation
among MPS is highest in 2005/06 and is lowest in 2012/13.

The non joint ventures banks are Kumari bank, laxmi bank, Macchapuchre bank,
NCC, Siddartha bank and Nepal Investment Bank. The average MPS among non-joint
venture bank is highest in FY 2007/08 i.e Rs 1056.33 and lowest in FY 2003/04 i.e Rs
216.2. Similarly, highest deviation among MPS is seen in FY 2006/07 and less
variation among MPS is seen in FY 2013/14 i.e 100.57. Coefficient of Variation is
highest in FY 2003/04 i.e 154.49 and is lowest in FY 2013/14.
Average MPS of joint venture bank is higher than Non Joint banks whereas there is
high deviation of MPS of joint venture bank than non joint venture banks.

4000
3500
Amount (in Rs.)

3000
2500
2000
1500
MPS
1000
500
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Year

48
 Fig 4.1.1: Trend of Average MPS of Joint Venture Bank

1400

1200
Amount (in Rs.)

1000

800

600
MPS
400

200

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Year

Fig 4.1.2: Trend of Average MPS of Non-Joint Venture Banks

3000

2500
Amount (in Rs.)

2000

1500

1000 MPS

500

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Year

Fig 4.1.3: Trend of Average MPS of aggregate banks

4.1.2 Average EPS of Joint Venture and Non-Joint Venture Banks

The table 4.1.2 shows the mean and standard deviation analysis of Earnings per Share
of aggregate sample commercial banks and joint and non joint venture banks. Earnings
per share is firm specific factor which affects the market price of share of commercial

49
banks.
Table 4.1.2: Table showing mean, standard deviation and C.V of EPS
of JV and
NJV banks
FiscalYear Joint Venture Banks Non Joint Venture Banks
Mean S.D C.V Mean S.D C.V
2003/04 69.01 50.15 72.66 8.54 16.57 51.53
2004/05 72.81 51.29 70.44 19.34 21.2 91.21
2005/06 89.07 62.72 70.42 5.33 48.5 10.99
2006/07 96.58 53.73 55.63 16.61 24.22 68.59
2007/08 84.71 40.37 47.66 22.25 11.35 196.07
2008/09 82.96 32.48 39.15 25.97 14.69 176.76
2009/10 62.38 33 52.9 24.12 11.26 214.15
2010/11 57.62 22.94 39.81 17.11 9.31 183.85
2011/12 61.45 28.63 46.6 19.93 14.77 134.9
2012/13 63.11 29.04 46.01 23.93 11.59 206.43
2013/14 59.11 24.09 40.75 26.55 7.67 346.08
2014/15 52.17 18.55 35.55 23.68 8.34 283.81

The table shows average EPS of joint venture and non joint venture banks. Average
EPS of JV bank is highest at 2006/07 whereas average EPS of non joint venture bank
is highest at F/Y 2008/09. Similarly, deviation of EPS is highest among non joint
venture banks which mean EPS is less fluctuating in joint venture banks.

50
 120

100

80
Amount (in Rs.)

60

40 MPS

20

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Fiscal Year

Fig 4.1.4: Trend of Average EPS of Joint Venture Bank

The average EPS of joint venture is in decreasing trend.

Average MPS of Non Joint Venture Banks

30

25
Amount (in Rs.)

20

15
MPS
10

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Fiscal Year

Fig 4.1.5: Trend of Average EPS of Non Joint Venture

Bank
The average EPS of non joint venture bank is fluctuating. The average EPS is highest
in FY 2013/14.

Trend showing relationship between MPS and EPS

The table shows the average MPS of aggregate commercial bank and average EPS of

51
aggregate commercial banks.

Table 4.1.3: Table showing Average MPS and Average

EPS
Fiscal Avg. MPS Avg. EPS
2003/04 592.33 38.76
2004/05 814.5 46.08
2005/06 1232.6 47.2
2006/07 2166.4 56.6
2007/08 2460.9 53.48
2008/09 2091.2 54.47
2009/10 1112.9 43.26
2010/11 680.6 37.37
2011/12 729.3 40.69
2012/13 880.8 43.52
2013/14 1340 42.83
2014/15 1073.5 37.92

Relationship of EPS and MPS

60

50

40
EPS (in Rs.)

30 EPS

20

10

0
0 500 1000 1500 2000 2500 3000
MPS (in Rs.)

Fig 4.1.6: Trend showing relation between MPS and

EPS

The above figure shows the relationship between average MPS and EPS of aggregate
commercial banks. It shows positive co-relation between MPS and EPS. It means
higher the EPS, higher is the market price of share. The trend analysis between MPS
and EPS can be shown in following figure.

52
 10000

1000

Avg. MPS
Avg. EPS
100

10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Fig 4.1.7: Trend Analysis and relationship of MPS and EPS

As seen in the above figure, whenever, the EPS of aggregate commercial banks is
increasing then MPS is also increasing showing that there is positive relationship
between EPS and MPS.

4.1.3 Average DPS of JV banks and NJV banks

The following table 4.1.4 shows the average calculation of dividend per share of
aggregate sample commercial banks, joint venture banks and non-joint venture banks.
Table 4.1.4: Calculation of average DPS of mean, S.D, C.V of JV and
NJV banks
Joint Venture bank Non Joint Venture Bank Aggregate Bank
Fiscal Year Mean S.D C.V Mean S.D C.V Mean S.D C.V
2003/04 65 45 69.23 5.44 7.5 72.63 35.22 26.25 70.93
2004/05 60.4 45.12 74.71 14.41 24.05 59.93 37.405 34.585 67.32
2005/06 66.25 59.21 89.38 11.36 13.12 86.52 38.805 36.165 87.95
2006/07 77.52 46.79 61.37 10.34 17.14 60.33 43.93 31.965 60.85
2007/08 76.25 30.48 50.68 11.96 9.96 120.01 44.105 20.22 85.345
2008/09 60.13 23.05 45.32 6.92 9.9 69.88 33.525 16.475 57.6
2009/10 50.87 16.66 42.86 16.19 18.82 86.02 33.53 17.74 64.44
2010/11 38.87 19.43 49.19 11.74 11.4 102.99 25.305 15.415 76.09
2011/12 39.5 23.08 54.94 10.90 12.3 88.64 25.2 17.69 71.79
2012/13 42 21.38 48.23 15.31 15 102.05 28.655 18.19 75.14

53
2013/14 44.32 6.23 16.69 27.38 9.96 274.91 35.85 8.095 145.8
2014/15 37.32 6.23 16.69 17.75 13.48 131.65 27.535 9.855 74.17

The table shows mean, standard deviation and coefficient of variation of joint venture
banks, non joint venture banks and aggregate sample banks. The average DPS of joint
venture bank is in decreasing trend whereas average DPS of non joint venture bank is in
increasing trend. The deviation of DPS of joint venture bank is in decreasing trend
whereas the deviation of DPS of non joint venture bank is in increasing trend. The
average DPS of aggregate bank is highest in FY 2007/08 and lowest in FY 2011/12.

The following table 4.1.4 shows the average calculation of dividend per share of
aggregate sample commercial banks, joint venture banks and non-joint venture banks.

DPS of Sampled Commercial Banks from FY 2003/04 to

FY 2014/15
50
45
40
35
Amount (in Rs.)

30
25 DPS
20
15
10
5
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15
Fiscal Year

Fig 4.1.8: Trend of Average DPS of Aggregate Bank

The figure shows the line graph of average DPS of selected sample bank. The average
DPS is highest at FY 2008/09 and is at decreasing trend. DPS is again increased in FY
2013/14.

Trend showing relationship between Average MPS and Average DPS

The table shows the average MPS of commercial bank and average DPS of
commercial bank and tries to explain relationship between MPS and DPS.

Table 4.1.5: Table showing Average MPS and Average DPS

54
 Fiscal Avg. MPS Avg.DPS
2003/04 592.33 35.22
2004/05 814.5 37.405
2005/06 1232.6 38.805
2006/07 2166.4 43.93
2007/08 2460.9 44.105
2008/09 2091.2 33.525
2009/10 1112.9 33.53
2010/11 680.6 25.305
2011/12 729.3 25.2
2012/13 880.8 28.655
2013/14 1340 35.85
2014/15 1073.5 27.535

Relationship of Avg.DPS and MPS of Sampled Com-

mercial Banks
50
45
40
35
DPS (in Rs.)

30
25 Avg.DPS
20
15
10
5
0
0 500 1000 1500 2000 2500 3000

MPS (in Rs.)

Fig 4.1.9: Trend showing relationship between MPS

and DPS

The figure shows the relationship between average MPS and average DPS of
commercial banks. It shows positive co-relation between MPS and DPS of
commercial banks. It means higher the DPS higher will be the market price of share.
The trend analysis of DPS and EPS can be shown in following figure

55
 10000

1000

Avg. MPS
Avg.DPS
100

10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15

Fig 4.1.10: Trend Analysis and relationship of MPS and DPS

As shown in the above figure, the trend of both MPS and DPS is increasing. It shows
that MPS and DPS have positive relationship with each other where increase in DPS
lead to increase in MPS and vice-versa.

4.1.4 Average P/E ratio of JV banks, NJV banks and Aggregate

banks
The following table 4.1.6 shows the mean, standard deviation and coefficient of
variation calculation of price-earnings ratio of aggregate sample commercial banks,
joint venture banks and non-joint venture banks.

Table 4.1.6: Calculation of mean, S.D and C.V of P/E ratio of joint
venture bank, non joint venture bank and aggregate bank

Joint Venture Bank Non Joint VentureAggregate Bank

Bank
Fiscal YearMean S.D C.V Mean S.D C.V Mean S.D C.V
2003/04 15.31 4.26 27.81 29.27 36.25 80.75 22.29 20.26 54.28
2004/05 18.22 4.29 23.54 47.78 60.14 79.45 33 32.22 51.50
2005/06 22.57 6.41 28.39 27.26 20.48 133.11 24.915 13.445 80.75
2006/07 32.33 3.53 10.92 46.65 18.34 254.37 39.49 10.935 132.645
2007/08 43.9 10.27 23.41 61.05 37.24 163.94 52.475 23.755 93.675
2008/09 41.21 13.88 33.69 33.67 17.9 188.07 37.44 15.89 110.88
2009/10 29.15 9.42 32.32 23.27 17.44 133.42 26.21 13.43 82.87
2010/11 18.48 5.78 31.26 52.81 92.99 56.79 35.645 49.385 44.025

56
2011/12 19.34 6.65 34.38 23.85 22.47 106.15 21.595 14.56 70.265
2012/13 22.1 4.49 20.33 17.28 9.66 178.8 19.69 7.075 99.565
2013/14 34.38 5.62 16.36 25.08 4.06 617.71 29.73 4.84 317.035
2014/15 28.84 4.47 15.51 24.93 6.08 409.91 26.885 5.275 212.71

The table shows aggregate mean, standard deviation and coefficient of variation of P/E
ratio of 10 sample commercial banks as well as of joint venture bank and non joint
venture banks. The mean of P/E ratio of joint venture bank is highest in FY 2008/09
and is lowest in FY 2003/04. The deviation among P/E ratio of joint venture bank is
highest in F/Y 2008/09 and is lowest in FY 2003/04.
The mean of P/E ratio of non joint venture bank is highest in FY 2007/08 and is
lowest in FY 2012/13. There is high deviation in P/E ratio of non joint venture banks
and it is in decreasing trend.

P/E Ratio of Sampled Banks from FY 2003/04 to FY

2014/15
60
50
P/E Ratio (in times)

40
30
P/E Ratio
20
10
0
4 5 6 7 8 9 0 1 2 3 4 5
3 /0 4/0 5/0 6/0 7/0 8/0 9/1 0/1 1/1 2/1 3/1 4/1
0 0 0 0 0 0 0 1 1 1 1 1
20 20 20 20 20 20 20 20 20 20 20 20
Fiscal Year

Fig 4.1.11: Trend of Average P/E ratio of Aggregate

Bank
The line graph shows average P/E ratio of aggregate sample commercial banks. The
average P/E ratio is highest in F/Y 2007/08.

Trend showing relationship between MPS and P/E ratio

The table shows the average MPS and average PE ratio of commercial bank of Nepal.

Table 4.1.7: Table showing average MPS and average PE ratio

57
 Fiscal Avg. Avg PE
Year MPS ratio
2003/04 592.33 22.29
2004/05 814.5 33
2005/06 1232.6 24.915
2006/07 2166.4 39.49
2007/08 2460.9 52.475
2008/09 2091.2 37.44
2009/10 1112.9 26.21
2010/11 680.6 35.645
2011/12 729.3 21.60
2012/13 880.8 19.69
2013/14 1340 29.73
2014/15 1073.5 26.89

Relationship between P/E Ratio and MPS

60

50
P/E Ratio (in times)

40

30 Avg P/E Ratio

20

10

0
0 500 1000 1500 2000 2500 3000

MPS (in Rs.)

Fig 4.1.12: Trend showing Relationship between MPS and

PE ratio

The figure shows the relationship between average MPS and average PE ratio of
commercial banks of Nepal. It shows positive co-relation between average MPS and
average PE ratio of commercial bank of Nepal. It means higher the PE ratio higher
will be MPS of banks. The above scattered plot can be supported by following trend
line analysis.

58
 10000

1000

100 Avg.
Avg PE
10

1
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
/04 /05 /06 /07 /08 /09 /10 /11 /12 /13 /14 /15
4.1.13: Trend Analysis and Relationship between MPS and PE ratio

As shown in the above figure, it tries to analyze the trend and relationship between MPS
and P/E ratio. The trend shows that both MPS and P/E ratio is increasing and have
positive relationship with each other. Increase in P/E ratio shows increase in MPS and
vice-versa.

4.1.5 Trend showing relationship between Average MPS and Average NPL
The table shows the average MPS and average NPL of commercial banks of Nepal.
Table 4.1.8: Table showing average MPS and average NPL
Fiscal Avg. Avg.
Year MPS NPL
2003/04 592.33 33.23
2004/05 814.5 27.24
2005/06 1232.6 22.73
2006/07 2166.4 15.62
2007/08 2460.9 12.29
2008/09 2091.2 10.09
2009/10 1112.9 11.65
2010/11 680.6 18.35
2011/12 729.3 15.68
2012/13 880.8 18.18
2013/14 1340 17.22
2014/15 1073.5 13.14

59
 Relationship between NPL and MPS of Sampled
Commercial Banks
35

30

25
NPL (in %)

20
Avg. NPL
15

10

0
0 500 1000 1500 2000 2500 3000
MPS (in Rs.)

Fig 4.1.14: Trend showing Relationship between MPS and NPL

The figure shows the relationship between average MPS and average NPL of
commercial bank of Nepal. It shows there is negative co-relation between MPS and
NPL of commercial banks. It means lower the NPL, higher will be the MPS of
commercial banks.

10000

1000

Avg. MPS
100 Avg. NPL

10
2003/ 2004/ 2005/ 2006/ 2007/ 2008/ 2009/ 2010/ 2011/ 2012/ 2013/ 2014/
04 05 06 07 08 09 10 11 12 13 14 15

Fig 4.1.15: Trend Analysis and Relationship between MPS and NPL

60
As shown in the above figure, it can be seen that MPS is increasing but NPL of
aggregate commercial banks is decreasing. The decrease in NPL has been due to much
more efficiency in the management of both joint venture as well as non joint venture
banks. Similarly, the relationship between them is similar as shown in the scattered
diagram. There lies inverse relationship between MPS and NPL of aggregate banks. As
NPL is increasing, MPS is decreasing and vice-versa.

4.2 Descriptive Statistics for Selected Variables of Commercial

Bank
4.2.1 Descriptive Statistics for Selected Variables of Commercial Banks
The table shows descriptive statistics-mean, standard deviation, minimum and
maximum values variables associated with 10 sample commercial banks for the
period 2004-2015. MPS refers to Market Price per share, EPS refers to the Earning per
Share, DPS refers to dividend per share, P/E ratio refers to Price Earnings ratio, NPL
refers to Non- performing Loan.

Table 4.2.1: Descriptive Statistics for selected variables of commercial

banks
Descriptive Statistics
N Minimum Maximum Mean Std.
Deviation
MPS(Rs) 120 107 6830 1262.33 1277.66
DPS(Rs) 118 0 140 32.53 32.13
EPS(Rs) 120 -8.89 175.84 46.37 37.95
Net
Profit(Million) 120 -19.34 41.58 23.75 10.08
Equity
Capital(Million) 120 -964.2 7928 2161.87 1566.80
PE Ratio 119 10.05 242.54 31.44 26.69

Return on assets 120 -1.67 3.25 1.59 0.74

61
 NPL 120 0 8.88 1.80 1.63

Interest Income 120 5.89 14.04 9.16 2.54

This is the table showing descriptive statistics of mean, deviation of aggregate sample
commercial banks. MPS ranges from 107 to 6830 and average of 1262.33 among the
selected samples and deviation of 1277.66. DPS ranges from 0 to 140 and average of
32.53 and deviation of 32.13. EPS ranges from -8.89 to 175.84 and average of 46.37
and deviation of 37.95. Equity capital ranges from -964.2 to 7928 and average of
2161.87 and deviation of 1566.80. P/E ratio ranges from 10.07 to 242.54 to average of
31.44 and deviation of 26.69. ROA ranges from -1.67 to 3.25 to average of 1.59 and
deviation of 0.74. Non Performing Loan ranges from 0 to 8.88 to average of 1.80 and
deviation of 1.63. Interest Income ranges from 5.89 to 14.04 and average of 9.16 and
deviation of 2.54.

4.2.2 Descriptive Statistics showing selected variables of Joint Ventures Bank

The table shows descriptive statistics-mean, standard deviation, minimum and
maximum values variables associated with 5 sample joint venture banks for the period
2004-2015. MPS refers to Market Price per share, EPS refers to the Earnings per
Share, DPS refers to dividend per share, P/E ratio refers to Price Earnings ratio, and
NPL refers to Non- performing Loan.

Table 4.2.2: Descriptive Statistics showing selected variables of JV

Banks

Indicators Std.
N Minimum Maximum Mean Deviation
MPS(Rs) 60 307.00 6830.00 1932.47 1477.54
EPS(Rs) 60 13.29 175.84 70.92 38.29
DPS(Rs) 58 0.00 140.00 51.02 35.08
Net 60 7.98 41.58 26.75 7.92
Profit(million)
Equity 60 587.10 6690.30 2481.07 1427.70
Capital(million)

62
 PE Ratio 59 11.67 54.64 27.43 11.04
Return on 60 0.55 3.25 1.93 0.67
assets
Non 60 0.16 8.88 2.14 1.98
performing
loan
Interest Income 60 6.23 13.14 9.37 1.76

This is the table showing descriptive statistics of mean, deviation of joint ventures
banks only. MPS of joint venture banks ranges from 307 to 6830 to average of
1932.47 and deviation of 1477.54. EPS of joint venture bank ranges from 13.29 to
175.84 to average of 70.92 and deviation of 38.29. DPS of joint venture bank ranges
from 0 to 140 and average of 51.02 and deviation of 35.08. Equity capital of joint
venture bank ranges from 587.10 to 6690.30 to average of 2481.07 and deviation of
1427.70. P/E ratio of joint venture bank ranges from 11.67 to 54.64 and average of
27.43 and deviation of 11.04. ROA of joint ventures bank ranges from 0.55 to 3.25
and average of 1.93 and deviation of 0.67. NPL of joint venture banks ranges from
0.16 to 8.88 and average of 2.14 and deviation of 1.98. Interest Income of joint
venture banks ranges from 6.23 to 13.14 and average of 9.37 and deviation of 1.76.

4.2.3 Descriptive Statistics for selected variables of Non-Joint Venture Banks

The table shows descriptive statistics-mean, standard deviation, minimum and
maximum values variables associated with 5 sample non-joint venture banks for the
period 2004-2015. MPS refers to Market Price per share, EPS refers to the Earnings
per Share, DPS refers to dividend per share, P/E ratio refers to Price Earnings ratio,
and NPL refers to Non- performing Loan.
Table 4.2.3: Descriptive Statistics showing selected variables of

NJV Banks

Indicator Std.
s N Minimum Maximum Mean Deviation
MPS 60 107 2450.00 592.20 442.72
EPS 60 -8.89 62.57 21.83 14.60
DPS 60 0.00 55.46 14.65 14.03
Net Profit 60 -19.34 40.55 20.76 11.14

63
 Equity 60 -964.20 7928.00 1842.67 1644.91
Capital
PE Ratio 60 10.07 242.54 35.38 35.68
Return on 60 -1.67 2.60 1.25 0.63
assets
Non 60 0.00 4.85 1.45 1.09
performing
loan
Interest 60 5.89 14.04 8.95 3.13
Income

This is the table showing mean, standard deviation of non-joint venture banks. MPS
of non-joint venture banks ranges from 107 to 2450 and average of 592.20 and
deviation of 442.72. EPS of non-joint venture bank ranges from -8.89 to 62.57 and
average of 21.83 and deviation of 14.60. DPS of non-joint venture bank ranges from 0
to 55.46 and average of 14.65 and deviation of 14.03. Equity capital of non-joint
venture bank ranges from -964.20 to 7928 and average of 1842.67 and deviation of
1644.91. P/E ratio of non-joint venture bank ranges from 10.07 to 242.54 and average
of 35.38 and deviation of 35.68. ROA of non-joint venture bank ranges from -1.67 to
2.60 and average of 1.25 and deviation of 0.63. NPL of non-joint venture bank ranges
from 0 to 4.85 and average of 1.45 and deviation of 1.09. Interest Income of non-joint
venture bank ranges from 5.89 to 14.04 and average of 8.95 and deviation of 3.13.

4.3 Hypothesis Testing of Variables (Independent Sample T-test)

The Independent Samples T- Test compares the means of two independent groups in
order to determine whether there is statistical evidence that the associated population
means are significantly different. The Independent Samples T- Test is a parametric
test.

4.3.1 Difference in Average Value of MPS between JV and NJV Banks

The following table 4.3.1 presents output of hypothesis test of MPS which is
undertaken to evaluate significant difference in average value of MPS between joint
venture and non-joint venture banks. Here, Null Hypothesis represents there is no

64
significant difference in average value of MPS between joint venture bank and non-
joint venture bank and alternative hypothesis represents there is significant difference
in average value of MPS between joint venture bank and non-joint venture bank.
Table 4.3.1: Difference in average MPS between JV and NJV banks
Variable JV NJV t-stat Sig Hypothesis Result

MPS 1932.47 592.20 6.73 0.00 Alternative accepted

The above table at 10% level of significance has sig value 0.00 which is less than 0.1
so, alternative hypothesis is accepted. It means there is significant difference in
average value of MPS between joint venture bank and non joint venture bank.

4.3.2 Difference in Average DPS between JV and NJV Banks

The following table 4.3.2 presents output of hypothesis test of DPS which is
undertaken to evaluate significant difference in average value of DPS between joint
venture and non-joint venture banks. Here, null hypothesis represents there is no
significant difference in average value of DPS between joint venture bank and non
joint venture bank and alternative hypothesis represents there is significant difference
in average value of DPS between joint venture bank and non-joint venture bank.

Table 4.3.2: Difference in Average DPS between JV and NJV banks

Variable JV NJV t-stat Sig Hypothesis Result

DPS 51.02 14.65 7.44 0.00 Alternative accepted

The above table at 10% level of significance has sig value 0.00 which is less than 0.1
so alternative hypothesis is accepted. It means there is significant difference in
average value of DPS between joint venture bank and non joint venture bank.

4.3.3 Difference in Average Value of EPS between JV and NJV Bank

The following table 4.3.3 presents output of hypothesis test of EPS which is
undertaken to evaluate significant difference in average value of EPS between joint
venture and non-joint venture banks. Here, null hypothesis represents there is no
significant difference in average value of DPS between joint venture bank and non-
joint venture bank and alternative hypothesis represents there is significant difference
in average value of DPS between joint venture bank and non-joint venture bank.

65
 Table 4.3.3: Difference in Average Value of EPS between JV and NJV
banks

Variable JV NJV t-stat Sig Hypothesis Result

EPS 70.92 21.83 9.28 0.00 Alternative accepted

The above table at 10% level of significance has sig value 0.00 which is less than 0.1
so alternative hypothesis is accepted. It means there is significant difference in
average value of EPS between joint venture bank and non joint venture bank.

4.3.4 Difference in Average Value of Equity Capital between JV and NJV Banks
The following table 4.3.4 presents output of hypothesis test of equity capital which is
undertaken to evaluate significant difference in average value of equity capital
between joint venture and non joint venture banks. Here, null hypothesis represents
there is no significant difference in average value of equity capital between joint
venture bank and non-joint venture bank and alternative hypothesis represents there is
significant difference in average value of equity capital between joint venture bank and
non-joint venture bank.

Table 4.3.4: Difference in Average Value of Equity Capital

between JV and NJV Banks
Variable JV NJV t-stat Sig Hypothesis Result
Equity Capital 2481.07 1842.67 0.943 0.025 Alternative accepted

The above table at 10% level of significance has sig value 0.025 which is less than
0.1, so alternative hypothesis is accepted. It means there is significant difference in
average value of equity capital between joint venture bank and non joint venture bank.

4.3.5 Difference in Average Value of P/E ratio between JV and NJV Bank
The following table 4.3.5 presents output of hypothesis test of P/E ratio which is
undertaken to evaluate significant difference in average value of P/E ratio between
joint venture and non joint venture banks. Here, null hypothesis represents there is no
significant difference in average value of P/E ratio between joint venture bank and
non-joint venture bank and alternative hypothesis represents there is significant
difference in average value of P/E ratio between joint venture bank and non-joint
venture bank.

66
 Table 4.3.5: Difference in Average Value of P/E ratio between JV and
NJV
Banks

Variable JV NJV t-stat Sig Hypothesis Result

27.43 35.38 -1.64 0.11 Null hypothesis accepted
P/E ratio

The above table at 10% level of significance has sig value 0.11 which is greater than
0.1, so null hypothesis is accepted. It means there is no significant difference in
average value of equity capital between joint venture bank and non joint venture bank.

4.3.6 Difference in Average Value of ROA between JV and NJV Banks

The following table 4.3.6 presents output of hypothesis test of ROA which is
undertaken to evaluate significant difference in average value of ROA between joint
venture and non-joint venture banks. Here, null hypothesis represents there is no
significant difference in average value of ROA between joint venture bank and non-
joint venture bank and alternative hypothesis represents there is significant difference
in average value of ROA between joint venture bank and non-joint venture bank.
Table 4.3.6: Difference in Average Value of ROA between JV and NJV
banks

Variable JV NJV t-stat Sig Hypothesis Result

Return on Assets 1.93 1.25 5.76 0.00 Alternative accepted

The above table at 10% level of significance has sig value 0.00 which is less than 0.1
so, alternative hypotheses is accepted. It means there is significant difference in
average value of Return on Assets between joint venture bank and non joint venture
bank.

4.3.7 Difference in Average Value of NPL between JV and NJV banks

The following table 4.3.7 presents output of hypothesis test of Non Performing loan
which is undertaken to evaluate significant difference in average value of No
Performing loan between joint venture and non joint venture banks. Here, Null
Hypothesis represents there is no significant difference in average value of NPL
between joint venture bank and non-joint venture bank and Alternative Hypothesis
represents there is significant difference in average value of NPL between joint
venture bank and non-joint venture bank.
67
 Table 4.3.7: Difference in Average Value
of Non Performing Loan between JV and
NJV banks

Variable JV NJV t-stat Sig Hypothesis Result

Null hypothesis
NPL 2.14 1.45 2.37 0.2 accepted
The above table at 10% level of significance has sig value i.e. 0.2 which is greater than
0.1, so null hypothesis is accepted which means there is no significant difference in
average value of NPL between joint venture bank and non joint venture bank.

4.3.8 Difference in Average Interest Income between JV and NJV Banks

The following Table 4.3.8 presents output of hypothesis test which is undertaken to
evaluate the significant difference in average value of interest income between joint
ventures and non joint ventures. Here Null Hypothesis represents there is no significant
difference in average value of interest income between joint venture bank and non-
joint venture bank and alternative hypothesis represents there is significant difference
in average value of interest income between joint venture bank and non joint venture
bank.
Table 4.3.8: Difference in Average Interest Income between JV and
NJV banks
Variable JV NJV t-stat Sig Hypothesis Result
Null Hypothesis accepted
Interest Income 9.37 8.95 0.913 0.36

The above table at 10% level of significance shows that as sig i.e 0.36 > 0.1, so null
hypothesis is accepted which means there is no significant difference in average value
of interest income between joint venture bank and non joint venture bank.

4.4 Correlation Analysis

Having indicated the descriptive statistics, the Pearson Correlation Coefficients have
been computed. The correlation coefficients show the magnitude and direction of the
linear relationship between market value of share and variables affecting market price of
the share of the sample commercial banks. The Pearson's correlation coefficients of
market price of share have been computed and the results are presented in Table 4.4.1.

68
 Table 4.4.1: Correlation Analysis

MPS DPS EPS Equity PE ROA NPL INT GDP INF

Capital Ratio

MPS 1
DPS .824** 1
EPS .807** .922** 1
Equity .089 .196* .128 1
Capital
PE .092 -.107 -.171 -.122 1
Ratio
ROA .576** .728** .765** .385** - 1
.276**
NPL -.169 -.055 -.062 -.121 -.044 - 1
**
.246
Int. -.158 -.017 -.018 .371** -.030 .093 .114 1
GDP .160 .011 -.015 .027 .116 -.010 -.097 .086 1
INF .079 .000 -.006 .341** .051 .150 - .416** .101 1
.276**
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
This table shows bivariate Pearson’s correlation coefficients between market value of
share and variables affecting market price of the share .EPS, DPS, P/E ratio, Equity
capital, ROA, NPL, INT, GDP, INF as defined in the table. The correlation
coefficients are based on the data from 10 sample banks with 120 observations for the
period 2004 through 2015.
The highest co-relation has been observed between MPS and DPS with 0.824. The
result shows highest co-relation of MPS with DPS, EPS and ROA with value 0.824,
0.807 and 0.576 respectively. The result shows MPS is positively related with DPS,
EPS, equity capital, P/E ratio, ROA, GDP and inflation. MPS is negatively related
with non performing loan and interest income.

69
4.5 Multiple Regression Analysis
Multiple regression is an extension of simple linear regression. It is used to predict the
value of a variable based on the value of two or more other variables. The variable
that we want to predict is called the dependent variable (or sometimes, the outcome,
target or criterion variable). The variables that are used to predict the value of the
dependent variable are called the independent variables (or sometimes, the predictor,
explanatory or regressor variables). Multiple regression also allows to determine the
overall fit (variance explained) of the model and the relative contribution of each of
the predictors to the total variance explained. (Laerd Statistics, 2017)

4.5.1 Derivation of Models

As a first approximation the model estimated in this study assumes that the market
price per share on firm specific and macroeconomic variables as may be seen as
under:
Market price per share = f (firm specific variables)

Market price per share = f (macroeconomic variables)

Market price per share = f (firm specific variables, macroeconomic variables)
The firm specific variables selected in this study are dividend per share, Equity
capital, Price earnings ratio, Return on Assets and Non Performing Loan. The
macroeconomic variables mainly include GDP growth rate, inflation and political
events measured by dummy variables.
The regression model can be expressed in following equation:

Ln(MPS)= α+β1Bank specific variables+β2macroeconomic variables+ϱ

ln(MPS)=α+β1DPS+β2ROA+β3NPL+β4PEratio+β5ln(CAP)+β6GDP+β7INF+β8D1+β9
D2+ϱ

Table 4.5.1 Determinants of Market Price per Share of Aggregate

Banks: Output
of Multiple Regression

70
 Model I Model II Model III
Aggregate Joint Venture Non Joint
Bank Bank venture Bank
C 4.303*** 6.424*** 5.234***
0.864 1.061 1.255
DPS 0.11*** 0.009*** 0.008
0.02 0.002 0.008
ROA 0.536*** 0.285*** 0.774***
0.124 0.98 0.241
NPL 0.023 -0.049 0.79
0.031 0.29 0.088
PE ratio 0.02 0.17*** 0.003
0.002 0.004 0.002
ln(cap) 0.127 -0.11 -0.37
0.141 0.162 0.211
Inflation -0.024 0.009 -0.52
0.024 0.023 0.36
GDP growth 0.045 0.041 0.017
0.0054 0.051 0.077
First CA Dissolved(D1) -0.681*** -0.273 -0.728***
0.154 0.176 0.238
0.636*** 0.338** 0.772***
Peace Treaty(D2) 0.169 0.162 0.245
2
R 0.749 0.854 0.59
2
Adj R 0.727 0.826 0.518
F 34.157 30.606 7.558
N 120 60 60

*=Coefficient is significant at 0.1

**=Coefficient is significant at 0.05
***=Coefficient is significant at 0.01

Model I represents the regression output of aggregate sample commercial banks. The
above model shows that DPS, ROA, political events are significant coefficients that
influence MPS of commercial banks. Political events are shown by dummy variables.

71
The two main political events taken are CA failure in 2008 and maoist joined interim
government in 2007. The model shows that DPS, ROA and maoist joined interim
government have positive influence in MPS of commercial banks. It means higher the
DPS, ROA then higher the share price of commercial bank. Similarly, political events
have both positive as well as negative impact on share price of commercial bank. The
favorable political events have positive influence on share price of commercial banks
and unfavorable political influence have negative impact on share price of
commercial bank. The output shows that ROA has strong influence on MPS with
higher β= 0.416. Similarly, DPS, political events, inflation, capital, P/E ratio, GDP
and NPL have respective influence on MPS. Here, 72.7% of variation in dependent
model (MPS) is explained by independent variables in the model.
In model II, the table shows the regression output of joint venture banks. The table
indicates DPS, ROA, P/E ratio and D2 are significant in relation to market price of
joint venture banks. The beta coefficient is positive for DPS, P/E ratio, ROA and
political events D1. Beta coefficients are significant for DPS, ROA and P/E ratio at
1% level of significance and D 2 is significant at 5% level of significance. The result
shows that higher the DPS, Return on Assets, Price earnings ratio and favorable events,
higher would be the market price per share. 82.6% of variation in market price of
share of joint venture bank is explained by independent variables (both firm specific
and macroeconomic variables) in the model.
In model III, the table shows the regression output of non joint venture banks. The
output indicates ROA and political events are significant in relation to market price of
non joint venture banks. The beta coefficient is positive for ROA and political event D 2
and is negative for political event D1. Beta coefficients are significant for ROA, D1 and
D2 at 5% level of significance. The result shows that higher ROA and favorable
political event, higher would be the market price per share. Unfavorable political
event leads to lower market price of share of non joint venture banks. 51.8% of
variation in market price of share of non joint venture bank is explained by
independent variables (both firm specific and non specific variables) in the model.

4.5.2 Estimated Relationship between MPS and firm specific variables

The table 4.5.2 shows estimated relationship of linear regression of share price and its
firm bank specific variables on selected Commercial Bank. The results are based on 12
years (2004-2015) time series data of commercial bank by using linear regression

72
model. The estimated model of the study is:
ln(MPS)=α+β1DPS+β2ROA+β3NPL+β4PEratio+β5ln(CAP)+ϱ
The reported values are intercepts and slope coefficients of respective explanatory
variables with t-statistic in the parenthesis. R Square indicates the predictive
explanatory power of the model while F-ratio shows the model fit.

Table 4.5.2 Determinants of Market Price per Share of Commercial

Bank based on Firm Specific Factor: Output of Multiple Regression
Model
Beta
Constant 5.792***
0.607
DPS 0.14*** 0.501
0.003
P/E ratio 0.004** 0.123
0.002
ROA 0.489*** 0.38
0.143
NPL -0.021 -0.638
0.033
In (Capital) -0.046 -0.558
0.083
R2 0.643
Adj. R2 0.626
F 38.546
N 60

*=Coefficient is significant at 0.1

**=Coefficient is significant at 0.05
***=Coefficient is significant at 0.01
The beta coefficients are positive for DPS, ROA and P/E ratio. The result shows that
higher the dividend per share, Return on Assets and Price Earnings Ratio, higher
would be the market price per share. However, beta coefficient is significant at 1%
level of significance for DPS and ROA and beta coefficient is significant at 5% level
of significance for P/E ratio. The model explains 62.6% variation in MPS by

73
independent variables (firm specific variables) in the model.

4.5.3 Estimated Relationship between MPS and Macroeconomic variables

of commercial banks
The Table 4.5.3 shows estimated relationship of linear regression of share price and
its macroeconomic variables on selected Commercial Bank. The results are based on
12 years (2004-2015) time series data of commercial bank by using linear regression
model. The estimated model of the study:
ln(MPS)=α+β1GDP+β2INF+β3D1+β4D2+ϱ
The reported values are intercepts and slope coefficients of respective explanatory
variables with t-statistic in the parenthesis. R Square indicates the predictive
explanatory power of the model while F-ratio shows the model fit.)
Table 4.5.3: Determinants of Market Rate of Share of commercial
bank based on
macroeconomic variables: Output of Multiple Regression Model
Beta
6.452***
Constant 0.472
0.043 0.044
GDP growth 0.095
-0.015 -0.04
Inflation 0.041
-0.647*** -0.366
D1 0.041
0.713*** 0.344
D2 0.259
R2 0.14
Adj. R2 0.11
F 4.574
N 120

*=Coefficient is significant at 0.1

**=Coefficient is significant at 0.05
***=Coefficient is significant at 0.01
The beta coefficients are positive and negative for political events. The political
events are explained by dummy variables D 1 and D2. D1 represents Constitution
assembly failure and D2 represents Maoist joined interim government. These political

74
events have both positive as well as negative impact on share price of commercial
bank. Here, political events D1 and D2 have beta coefficient of -0.366 and 0.344
respectively at 1% level of significance. It means favorable political events have
positive impact on MPS and unfavorable political events have negative impact on
share price of commercial banks. The model shows GDP and inflation is insignificant
macroeconomic variables. Here, 11% variation in dependent variable (market price of
share) is explained by independent variables (macroeconomic variables) in the model.

75
 CHAPTER V

RESULTS AND DISCUSSION

In the previous section, data were collected and analyzed by using various statistical
methods. So, the results are the outcome of the analyzed data which will give us the
some informative ideas towards our research. These results will give insight about the
study and help researcher to point out any deviation from previous research studies.

5.1 Summary of Results

The data were tested whether there is a significant or insignificant relationship between
dependent variable (Stock Price) and Independent variables such as DPS, EPS, Bank
Size, NPL, P/E ratio, ROA, GDP, Inflation, Interest rate, and Politics of country. The
following table shows the summary of testing of hypothesis by researcher:
Table 5.1 Summary of Results
Hypothesis Statement Results

H01 There is positive relationship between Accept

MPS and DPS

H02 There is positive relationship between Accept

MPS and EPS

H03 There is positive relationship between Reject

MPS and Bank Size (Equity Capital)

H04 There is negative relationship between Accept

MPS and NPL

H05 There is positive relationship between Accept

MPS and P/E Ratio
 H06 There is positive relationship between Accept
MPS and ROA

H07 There is positive relationship between Reject

MPS and GDP

H08 There is positive relationship between Reject

MPS and Inflation

H09 There is negative relationship between Accept

MPS and Interest Rate

H10 There is relationship between MPS and Accept

Politics of Country

As seen in the above table, this research has propounded 10 hypotheses all relating to
know the impact on share prices of the company. Among 10 hypotheses, 7 null
hypotheses has been accepted which shows reliability in the formulation as well as
conclusion of the result. Positive relationship of MPS with DPS, EPS, P/E ratio and
ROA has been accepted along with negative relationship with NPL and Interest rate.
Similarly, positive relationship of MPS with Bank Size, GDP and Inflation has been
rejected which means alternative hypotheses has been accepted. Furthermore,
considering the politics variable, both positive and negative relationship has been
accepted because good favorable political news tends to increase MPS whereas
unfavorable political news tends to decrease MPS. Constitution assembly failure was
found unfavorable news thus making decline in the share price of listed companies of
NEPSE where Maoist joining interim government was found favorable news thus
increasing the share prices of the company. Many other political events have been
affecting the share price in the recent times such as Constitution amendment, Local
level election, and many others.

77
5.2 Discussion
In literature reviews, there have been various studies regarding the stock prices
considering numerous variables which have their own significance. Many researchers
have discussed regarding same phenomena and have reached to certain outcomes. Like
others, this report has made certain outcomes from the studied conducted.
Uwuigbe, Olowe, Olusegun, and Godswill (2012) examined the determinants of share
prices in the Nigerian stock exchange market. They found that firms’ financial
performance in terms of dividend and financial leverage is positively related to
share price. Like study of Uwuigbe, Olowe, Olusegun, and Godswill (2012), this
report also makes similar outcomes where dividend is the most influencing
variable in determining market value of shares.
Malhotra and Tandon (2013) attempted to determine the factors that influence stock
prices in the context of National Stock Exchange (NSE) of 100 companies. The
variables such as firms’ book value, earning per share, and price-earnings ratio
showed significant positive relationship with market value whereas dividend yield
has inverse relationship with market value. Like study of Malhotra and Tandon
(2013), this report makes similar result with respect to the variables like earnings per
share and price earnings ratio. Earnings per share provide the basis of firms earning
in terms of one unit of share and higher the EPS higher the chances of more
dividend. Similarly, price earnings ratio shows the potential future growth of the
company in terms of investors’ expectation. Higher the P/E ratio, higher the market
value with higher future growth expectation from investors which lead to increase in
the market value of shares. In this study, many joint venture banks have higher EPS
and P/E ratio than non joint venture banks.
Almumani (2014) attempted to identify the quantitative factors that influence share
prices for the listed banks in ASE over the period 2005-2011.The study has chosen
dividend per share, earning per share, book value per share, dividend payout, price
earnings ratio, and size in terms of total assets as possible determinants of share prices.
The variables earning per share, book value per share, price earnings ratio, and size are
significant determinants of share prices. Similar to Almumani (2014), this study
covers the variables like P/E ratio, EPS and firms’ size. As discussed earlier EPS and
P/ E ratio have significant relationship with MPS, whereas firms’ size has been found
to be insignificant to determine the MPS. Firms’ size in terms of equity capital and

78
total assets merely present the business area which makes direct impact on the
financial performance but does not directly relate with the market price per share.
Many literatures such as Nirmala et al. (2011), Srinivasan (2012) and Sharif et al.
(2015) have studied the similar variables of firms’ financial performance such as
EPS, P/E ratio, DPS to show their impact on MPS and all made the relevant result
where those variables had significant relationship with the market price.
In terms of Nepalese context, many researchers have done study on determining the
share price. Studies from Bhattarai (2014) had done comprehensive study of
commercial banks of Nepal listed on NEPSE from the period of 2006 to 2014. The
results revealed that earning per share and price- earnings ratios have the significant
positive association with share price while dividend yield showed the significant
inverse association with share price. Like the study of Bhattarai (2014) this study has
also found similar outcomes in earnings per share and price-earnings ratio which has
significant impact on share price. However, this study has not included the variable
dividend yield but I as a researcher also agree with the result based on this variable
which shows inverse relation with share price.
Similarly, this study can be related with Shrestha (2011) who attempted to ascertain
the determinants of non-performing loans (NPL) in the Nepalese commercial banking
sector using a descriptive statistics. The study from Shrestha (2011) show that
aggregate NPL of commercial banks is in decreasing trend and the model is
consistent with priori of the NPL to its stock price. Like Shrestha (2011), this study
also found significant result. As NPL of banks increases, it results in the decline of
share price. Increase in NPL leads to decrease in earning capacity of banks which lead
to lower profitability with lower return to investors.
Pradhan and Dahal (2016) using data of 14 banks listed in NEPSE for the period
2002/03-2013/14 shows that firm specific variables like earnings per share, divided
per share, price earnings ratio, book value per share, return on assets and size are the
major determining stock price in context of commercial banks in Nepal. Like
Pradhan and Dahal (2016), this study has also found EPS, DPS, P/E ratio, ROA as
major influencing factors of stock price for commercial banks. These factors are
fundamental ones which provide the base for analysis to investors in order to
purchase the share of the company.
The research was conducted considering various variables related to firm specific,
macro-economic and political scenario. Each variable consisted of their own factors
79
which we analyzed and discussed in earlier chapters. The discussion lies on the
contradictory aspects of the result which has been found different than other researches.
The main contradiction lies on the impact of GDP on market price which should be
positive considering the previous researches. But in this research, it has resulted as
insignificant variable. Similarly, to make this report more reliable, the political aspects
through two major events have been included. Those two major events were
Constitution assembly failure and Maoist joined interim government. Those events
showed the significant impact on the market price. So this political variable has been
recognized as the major indicator for influencing the share price.
The study of the determinants of equity share prices has been a subject of great interest
these days. Moreover, it is a subject of immense curiosity especially a banking sector to
identify the factors that influence share prices. The shares of commercial banks offer the
investment opportunities to Nepalese investors because these shares are more frequently
traded in the market than as compared to others in Nepalese context. Specifically, this
study examined the effects of DPS, EPS, Bank Size, NPL, P/E ratio, ROA, GDP,
Inflation, Interest rate, and Politics of country on the share price of companies
(especially joint venture commercial banks) listed on Nepal stock exchange Limited.
Apart from that, as much as variables have been used in this report, so that, inferences
drawn from the report will be valuable to the readers and other stakeholders.

80
 CHAPTER VI

FINDINGS, CONCLUSION AND RECOMMENDATION

The chapter summarizes and concludes the major findings that have been derived
from the data analysis of the study.

6.1 Summary of Findings

The main objective of the study is to identify the firm specific factors and macro
economic variables affecting the share price of commercial bank of Nepal. Market
price per share is selected as dependent variables. Firm specific variables and macro
economic variables are selected as independent variables. Specifically, it examines
relationship of market price of share with the firm specific factors like dividend per
share, Earning per Share, equity capital, Price earnings ratio, Non performing loan and
Return on Assets. It also examines the relationship between share price of commercial
banks and macro economic variables like GDP growth, inflation, interest rate and
political events.
The study has taken sample size of 10 commercial banks of Nepal. The sample
includes five joint venture banks and five non joint venture banks. It includes total
observation of 120 which includes data collected from 2003-2015. The study is based
on secondary data. The data were collected from the banking and financial statistics
and supervision report published by Nepal Rastra Bank and annual report of selected
banks. The multiple regression models were estimated to test impact of firm specific
and macroeconomic factors on share price of Nepalese commercial banks. The study
has been conducted to identify the factors affecting the share price of commercial
banks in Nepal. The main findings of study are as follows:
 The study has taken 10 sample commercial banks which include five joint
venture banks and five non joint venture banks.
 The study is based on secondary data. The data are collected from NRB
websites and annual report of commercial banks.
 The study has total observation of 120 periods. The period includes year 2004-
2015.
 The first analysis part includes mean and standard deviation analysis. The
 mean, S.D analysis of MPS of aggregate sample commercial banks, joint
venture and non joint venture bank shows that average mean of MPS of joint
venture bank is higher than average mean of MPS of non joint venture bank.
Higher deviation of MPS is seen among non joint venture bank.
 Average MPS of aggregate bank is higher in FY 2007/08. The MPS of
commercial bank is fluctuating. Average MPS of aggregate bank is lower in
FY 2010/11.
 MPS of commercial bank is affected by various variables. EPS is one factor
that affects MPS of commercial bank. The result shows that average value of
EPS is higher among joint venture banks than non joint venture banks.
Similarly, higher deviation of EPS is seen among non joint venture banks.
 As Market price of share of commercial bank is in decreasing trend, similarly
EPS is also in decreasing trend. The highest EPS is seen in FY 2006/07.
 The EPS of non joint venture bank is fluctuating. The average EPS of non
joint venture bank is highest in FY 2013/14.
 DPS is another important variable that affect the market price of share of
commercial bank in Nepal. The result shows that average value of DPS of
joint venture bank is higher than average value of DPS of non joint venture
bank. Deviation of DPS is higher among non joint venture banks. It shows that
joint venture banks pay higher dividend per share than non joint venture
banks.
 The next analysis conducted is descriptive statistics which shows minimum,
maximum values as well as mean and standard deviation of aggregate, joint
venture and non joint venture banks of variables affecting share price. The
aggregate sample commercial banks MPS ranges from 107 to 6830 and
average of 1262.33 among the selected samples and deviation of 1277.66.
DPS ranges from 0 to 140 and average of 32.53 and deviation of 32.13. EPS
ranges from -8.89 to 175.84 and average of 46.37 and deviation of 37.95.
Equity capital ranges from -964.2 to 7928 and average of 2161.87 and
deviation of 1566.80. P/E ratio ranges from 10.07 to 242.54 to average of
31.44 and deviation of 26.69. ROA ranges from -1.67 to 3.25 to average of
1.59 and deviation of 0.74. Non Performing Loan ranges from 0 to 8.88 to
average of 1.80 and deviation of 1.63. Interest Income ranges from 5.89 to
14.04 and average of 9.16 and deviation of 2.54.
82
 The MPS of joint venture banks ranges from 307 to 6830 to average of
1932.47 and deviation of 1477.54. EPS of joint venture bank ranges from
13.29 to 175.84 to average of 70.92 and deviation of 38.29. DPS of joint
venture bank ranges from 0 to 140 and average of 51.02 and deviation of
35.08. Equity capital of joint venture bank ranges from 587.10 to 6690.30 to
average of 2481.07 and deviation of 1427.70. P/E ratio of joint venture bank
ranges from 11.67 to 54.64 and average of 27.43 and deviation of 11.04. ROA
of joint ventures bank ranges from 0.55 to 3.25 and average of 1.93 and
deviation of 0.67. NPL of joint venture banks ranges from 0.16 to 8.88 and
average of 2.14 and deviation of 1.98. Interest Income of joint venture banks
ranges from 6.23 to 13.14 and average of 9.37 and deviation of 1.76.
 The MPS of non-joint venture banks ranges from 107 to 2450 and average of
592.20 and deviation of 442.72. EPS of non-joint venture bank ranges from
8.89 to 62.57 and average of 21.83 and deviation of 14.60. DPS of non-joint
venture bank ranges from 0 to 55.46 and average of 14.65 and deviation of
14.03. Equity capital of non-joint venture bank ranges from -964.20 to 7928
and average of 1842.67 and deviation of 1644.91. P/E ratio of non-join
venture bank ranges from 10.07 to 242.54 and average of 35.38 and deviation
of 35.68. ROA of non-joint venture bank ranges from -1.67 to 2.60 and
average of 1.25 and deviation of 0.63. NPL of non-joint venture bank ranges
from 0 to 4.85 and average of 1.45 and deviation of 1.09. Interest Income of
non-joint venture bank ranges from 5.89 to 14.04 and average of 8.95 and
deviation of 3.13.
 Independent sample T-test is also conducted to compare the mean of two
independent groups in order to define whether there is statistical evidence that
the associated population means are significantly different. The analysi
conducted compares the difference in average value of associated variables
between joint venture banks and non joint venture banks.
 The independent sample T test result shows that there is significant difference
in average value of MPS, DPS, EPS, equity capital and ROA between joint
venture and non joint venture banks.
 The independent sample T test result shows that there is no significant
difference in average value of P/E ratio, NPL and interest income between
joint venture and non joint venture banks.
83
 Pearson correlation test is conducted to measure strength of relationship
between associated variables. The test conducted shows that there is strong
relationship between MPS and DPS with 0.824.
 The result shows that MPS has strong relationship with DPS, EPS and ROA
with value of 0.824, 0.807 and 0.576 respectively.
 Co-relation analysis shows that MPS is positively related with DPS, EPS,
equity capital, P/E ratio, ROA, GDP and inflation. It means Higher the DPS,
EPS, equity capital, P/E ratio, ROA, GDP and Inflation higher will be the
MPS.
 The result shows that MPS is negatively related with NPL and Interest
Income. It means that Lower NPL and interest income, higher will be the
share price.
 Multiple Regression Model is also used to analyze relationship between
dependent and independent variables. Different multiple regression model are
used to analyze the relationship between MPS and firm specific variables and
macro economic variables. Political events are explained by dummy variable
D1 and D2.
 Model I represents the regression output of aggregate sample commercial
banks. The model shows that DPS, ROA, political events are significant
coefficients that influence MPS of commercial banks. Political events are
explained by dummy variables. The two main political events taken are CA
failure in 2008 and maoist joined interim government in 2007.
 The model shows that DPS, ROA and maoist joined interim government have
positive influence in MPS of commercial banks. It means higher the DPS,
ROA then higher the share price of commercial bank. Similarly, political
events have both positive as well as negative impact on share price of
commercial bank. The favorable political events have positive influence on
share price of commercial banks and unfavorable political influence have
negative impact on share price of commercial bank. The output shows that
ROA has strong influence on MPS with higher β= 0.416. Here, 72.7% of
variation in dependent model (MPS) is explained by independent variables in
the model.
 In model II, the table shows the regression output of joint venture banks only.
The table indicates DPS, ROA, P/E ratio and D 2 are significant in relation to
84
 market price of joint venture banks. The beta coefficient is positive for DPS,
P/E ratio, ROA and political events D1. Beta coefficients are significant for
DPS, ROA and P/E ratio at 1% level of significance and D 2 is significant at
5% level of significance. The result shows that higher the DPS, Return on
Assets, Price earnings ratio and favorable events, higher would be the market
price per share. 82.6% of variation in market price of share of joint venture
bank is explained by independent variables (both firm specific and
macroeconomic variables) in the model.
 In model III, the table shows the regression output of non joint venture banks
only. The output indicates ROA and political events are significant in relation
to market price of non joint venture banks. The beta coefficient is positive for
ROA and political event D2 and is negative for political event D 1. Beta
coefficients are significant for ROA, D1 and D2 at 5% level of significance.
The result shows that higher ROA and favorable political event, higher would
be the market price per share. Unfavorable political event leads to lower
market price of share of non joint venture banks. 51.8% of variation in market
price of share of non joint venture bank is explained by independent variables
(both firm specific and non specific variables) in the model.
 The estimated relationship of MPS with firm specific variables shows that the
beta coefficients are positive for DPS, ROA and P/E ratio. The result shows
that higher the dividend per share, Return on Assets and Price Earnings Ratio
higher would be the market price per share. However, beta coefficient is
significant at 1% level of significance for DPS and ROA and beta coefficient is
significant at 5% level of significance for P/E ratio. The model explains 62.6%
variation in MPS by independent variables (firm specific variables) in the
model.
 The estimated relationship of MPS with macro economic variables shows that
the beta coefficients are positive and negative for political events. The political
events are explained by dummy variables D1 and D2. D1 represents first
Constitution assembly Dissolved and D2 represents Peace Treaty done (Maoist
joined interim government). These political events have both positive as well
as negative impact on share price of commercial bank. Here, political events
D1 and D2 have beta coefficient of -0.366 and 0.344 respectively at 1% level of
significance. It means favorable political events have positive impact on MPS
85
 and unfavorable political events have negative impact on share price of
commercial banks. The model shows GDP and inflation is insignificant
macroeconomic variables. Here, 11% variation in dependent variable (market
price of share) is explained by independent variables (macroeconomic
variables) in the model.
 The study shows that among firm specific variables, DPS and ROA have
significant relationship with DPS. There is positive relationship of MPS wit
DPS and ROA. Among macro economic variables, political events have
significant impact on share price of commercial banks. Political events have
both positive and negative influence on share price of commercial banks. The
study result shows that share price of commercial banks is mainly influenced
by dividend per share, return on assets and political events.

6.2 Conclusion
The result shows that firm specific variables like dividend per share, earning per
share, Return on Assets are the major determining factors affecting the share price of
commercial banks in Nepal. Among the firm specific variables, dividend per share is
found to be the most important determining variable that affects the share price. It
mean, higher the dividend payment, higher would be the share price of commercial
banks in Nepal.
Among macro economic variables, political events have significant impact on share
price of commercial banks. Political events have both positive and negative
relationship with share price of commercial bank. The favorable political events have
positive impact on share price and unfavorable political events have negative impact on
share price of commercial banks in Nepal. The result shows that MPS is positively
related with DPS, EPS, equity capital, P/E ratio, ROA, GDP and inflation. Similarly,
MPS is negatively related with NPL and interest income.

6.3. Recommendation
Share price of any company reflects the wealth position of the investors. Those
companies doing well are able to maximize the assets value of the shareholders thus
making investors attracted to their companies share. However, in Nepalese context,
companies are not doing so, as they try to make profit for themselves. This has led to

86
bad corporate governance and making the companies’ position in risk scenario. So,
through this paper, I would like to recommend following things to make fair about
determining the price of share:
1. There should be tight monitoring related to information leaking as it directly
impact the share price of the company. A practice such as insider trading is
bringing price fluctuation in inefficient way.
2. Companies should base their performance in order to maximize the value of the
shareholders by increasing the market price of the share which can be done
through higher profit distribution in term of dividend.
3. Regulatory bodies such as NRB, SEBON and NEPSE should implement
effective system to facilitate the buying and selling of shares for the investors.
This will boost up the capital market of Nepal and many companies can promote
themselves.
4. There should be effective role of mutual funds to stabilize the unusual volatility
in the share price of the company. They should take precautionary measures to
maintain efficient market scenario.

6.4. Scope for Further Study

This study tries to address both the company as well as macro variables which directly
affect the share price of the company. Many literatures have been reviewed to make
the study better and draw significant conclusion out of it. However, there lacks some
issues to be addressed which can be carried out on further study:
1. Company specific factors such as Cost of Fund, CCD Ratio, provision for
possible losses have been neglected which is also important to measure the
company’s performance for stock price.
2. Many more political events could have been studied in order the make the solid
relationship between political scenario and share price movement.
3. Macro variables such as Remittance, Per Capita Income could have been
studied to base the strong relationship which can be carried out in further study.
4. Further study can focus on taking sample of more than 30 years to enhance the
quality of the research paper.

87
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