1 Dividend policy and its impact on share price: A study on Nepalese commercial banks - Ankur Shrestha Abstract This paper examines the impact of dividend policy on market price per share. This study is based on pooled cross-sectional analysis of secondary data of 17 commercial banks with 102 observation for the period of 2008 to 2013. Market price per share and share price volatility are selected as the dependent variables for this study. Earnings per share, retained ratio, dividend payout ratio and dividend yield ratio are the explanatory variables. Return on equity, profit after tax, liquidity, growth of total assets, size of total assets and leverage are used as the control variables. The secondary data were collected from the supervision report of Nepal Rastra Bank, annual reports of commercial banks, different published articles, reports and concerned banks in some cases. The multiple regression models are applied to test the significance and impact of dividend policy on market price per share listed in the Nepal stock exchange. The result shows that the earnings per share is positively related to market price per share. The results are also significant at 1 percent. Retained ratio and liquidity is negatively related to market price per share. The result also shows that dividend payout ratio and growth of total assets is positively related to share price volatility whereas dividend yield ratio, size of total assets and leverage have insignificant effect on share price volatility. Keywords: Market price per share, share price volatility, earnings per share, retained ratio, return on equity, profit after tax, liquidity, dividend payout ratio, dividend yield ratio, growth of total assets, size of total assets and leverage. 1. Introduction How do dividend policy decisions affect a firm's stock price is a widely researched topic in the field of investments and finance but still it remains a mystery that whether dividend policy affects the stock prices or not. There are those who suggest that dividend policy is irrelevant because they argue a firm's value should be determine by the basic earning power and business risk of the firm, in which case value depends only on the income produced, not on how the income is split between dividends and retained earnings and opponents of this statement called dividend is irrelevance, that investors care only about the total returns they receive, not whether they receive those returns in the form of dividends, capital gains or both. The results of researches conducted in various stock markets are different. There are many internal and external factors, which simultaneously affect stock prices and it is almost impossible to segregate the effect of each so the variations remain.
- Fall '16
- Dividend, Dividend yield