This paper examines the impact of dividends on stock monetary value in the context of Nepal. A bulk of earlier surveies conducted in developed states show that dividend has a strong consequence than retained net incomes. The survey examines whether this is consistent in the context of Nepal ( or non ) and the deduction peculiarly to the banking and non-banking sector. To accomplish the aim of the survey. a descriptive and analytical research design has been administered. The secondary informations are used to prove this impact. In order to analyze the impact of dividends on stock monetary values. a multivariate additive arrested development analysis has been implied in which current market stock monetary value is taken as a dependant variable and four other variables viz. Dividend Per Share ( DPS ) . Retained Net incomes Per Share ( REPS ) . Lagged Price Net incomes Ratio ( P/E ratio ) and Lagged Market Price Per Share ( MPS ) as the explanatory variables.
This effort has been made to prove the dividends retained gaining hypothesis and to analyze the estimated relationship over the period of clip. The overall decision drawn in this survey reveals that. the impact of dividends is more marked than that of maintained net incomes in the context of Nepal. Dividend has a important consequence on market stock monetary value in both banking and non-banking sector. Cardinal words: Dividends. stock monetary value. banking and non- banking sector. multivariate additive arrested development analysis
JEL Classification: D53. G10. G14
I. Introduction
Dividend is the consequence of a discretional determination made by the board of managers of a house. Generally. a steadfast announces dividend on the net income. Corporate dividend policy is one of the most abiding issues in modern corporate finance. Dividend policy determines the division of net incomes between payments to shareholders and reinvestment in the house ( Weston. Copeland & A ; Shatri: 2004 ) . Miller and Modigliani ( 1961 ) hold given a theory *
Faculty Member. Tribhuvan University. Central Department of Management. Kathmandu. Nepal. Electronic mail: [ electronic mail protected ]saying that the stockholders should be apathetic between sum distributed and retained in the house. However. in pattern. the premise of capital market flawlessness does non be that lead to the state of affairs where dividend policy is relevant. Friend and Puckett ( 1964 ) studied dividend and stock monetary values utilizing transverse subdivision informations to prove the consequence of dividend payout on portion value utilizing arrested development theoretical account. Chawla and Srinivasan ( 1987 ) studied the relationships between dividend and portion monetary value in the Indian context. The consequence concluded that the impact of dividends is more marked than that of the maintained net incomes. Similarly. Kumar and Mohan ( 1975 ) concluded that the stock market has started acknowledging the impact of maintained net incomes in Indian stock market.
The survey of Lintner ( 1956 ) revealed that the determiners of alterations in dividends are current net incomes and the dividends distributed in the yesteryear are capable to extenuate the dividend hard currency flow relationships. Khan ( 2009 ) found the groundss that dividends. retained net incomes and other determiners have dynamic relationship with market portion monetary value. The survey suggests that the overall impact of dividends on stock monetary values is relatively better that of maintained net incomes. There are two different positions sing the dividend policy and stock monetary value. Those who think dividends have more impact in finding portion monetary value. argues that stockholder prefers current return instead than future return and dividend distribution is an index of gaining capacity in future. The other positions are based on the importance of maintained net incomes.
They argue that maintained net incomes are index of future investing chances. The stockholders can bask revenue enhancement advantages in maintained net incomes. For revenue enhancement intent. maintained sum is non treated as income until it is realized. A figure of surveies on impact of dividends on stock monetary value have been carried out in different parts of the universe peculiarly in developed states. Most of the earlier surveies show the important function of dividend policy on stock monetary value. The corporate houses should follow the appropriate dividend policy to maximise the shareholders’ value. Dividend policy is considered as one of the of import and critical variables impacting the portion monetary value. In the context of Nepal. limited surveies ( such as Pradhan:2003. Manandhar: 1998 ) have been carried out by research bookmans. Still there is a spread in the fiscal
literature refering the consequence of dividends on stock monetary values peculiarly in banking and nonbanking sectors of Nepal. The overall aims of this paper are to detect the impact of dividends on stock monetary value in Nepal. On top of that this paper has been written to find the relationships of market monetary value per portion with related fiscal indexs such as net incomes per portion. retained net incomes. lagged monetary values net incomes ratio and lagged market monetary value per portion.
II. REVIEW OF PREVIOUS STUDIES
After the dividend irrelevancy theory proposed by Modigliani and Miller ( MM ) in 1961. many theories have emerged over the clip such as Gordon ( 1962 ) . Walter ( 1963 ) . Friend and Puckett ( 1964 ) . Some theories supported MM’s theory of dividend irrelevancy whereas most of the theories opposed. MM theorized that the dividend policy is irrelevant like in the capital-structure irrelevancy proposition with no revenue enhancements or bankruptcy costs. This is known as the “dividend-irrelevance theory” . bespeaking that there is no consequence from dividends on a company’s capital construction or stock monetary value. MM argued that the value of the house is based on its basic gaining power and its concern hazard. non how it distributes net incomes to stockholders.
The dividend penchant theory holds that the firm’s value will be maximized by a high dividend payout ratio because investors regard hard currency dividends as being less hazardous than possible capital additions. Higher payout ratio leads to the addition in steadfast value and lessening in cost of capital. The common premises this theory is explained below. • There is a perfect capital market in which all investors behave rationally. • Corporation revenue enhancement does non be therefore there is no differences between revenue enhancement rates in capital additions and dividends. • The flotation costs on securities are ignored. • There is neither a changeless dividend policy of house. which will non alter the hazard skin color nor the rate of return even in instances where the investings are funded by the maintained net incomes.
Based on these premises and utilizing the procedure of arbitrage Miller and Modigliani have explained the irrelevancy of the dividend policy. Firms have two options for use of its net income after revenue enhancement i. e. ( I ) to retain the net incomes and Big Dipper back for investing intents ( two ) distribute the net incomes as hard currency dividends. If the house selects the 2nd option and declares dividend so it will hold to raise capital for financing its investing determinations by selling new portions. Here. the arbitrage procedure will neutralize the addition in the portion value due to the hard currency dividends by the issue of extra portions. This makes the investor indifferent to the dividend net incomes and the capital additions since the portion value of the house depends more on the future net incomes of the house than on its dividend policy.
Therefore. if there are two houses holding similar hazard and return profiles the market value of their portions will be similar in malice of different payout ratios. In line with the dividend irrelevancy hypothesis. Black and Scholes ( 1974 ) examined the relationships between dividend output and stock returns in order to place the consequence of dividend policy on portion monetary values.
Their consequences showed that the expected return either on high or low output stocks are the same. Black and Scholes. therefore. concluded that neither high-yield nor low-yield payout policy of houses seemed to act upon stock monetary values. Gordon ( 1962 ) gave importance to the dividend policy of the house. Gordon used the dividend capitalisation attack to analyze the consequence of the firm’s dividend policy on the stock monetary value. Gordon’s theoretical account is based on the undermentioned premises: • No external funding is available for the corporation and maintained net incomes would be used to finance enlargement as good.
• Return on Investment ( R ) and the cost of equity capital ( ke ) remain changeless. • Firm has an infinite life. • The keeping ratio remains changeless and therefore the growing rate is besides changeless ( g=br ) . • k & gt ; g i. e. . cost of equity capital is greater than the growing rate. Gordon concluded that dividend policy of a steadfast affects its value. The decision of the survey is that investors give more value to the present dividends instead than future capital addition. This statement insisted that an addition in dividend payout ratio leads to an addition in the stock monetary value for the ground that investors consider the dividend output ( D1/P0 ) is less hazardous than the expected capital addition. James E. Walter ( 1963 ) considers that dividends are relevant and they do impact the portion monetary value. He showed the relationship between the internal rate of return ( R ) and the cost of capital of the house ( K ) . to give a dividend policy that maximizes the shareholders’ wealth. The Walter’s theoretical account is based on following premises
• Retained net incomes are the lone beginning of finance available to the house. with no outside debt or extra equity used. • R and K are assumed to be changeless and therefore extra investings made by the house will non alter its hazard and return profiles. • Firm has an infinite life. • For a given value of the house. the dividend per portion and the net incomes per portion remain changeless. The theoretical account studied the relevancy of the dividend policy in three state of affairss: ( a ) R & gt ; ke. ( B ) R & lt ; ke. and ( degree Celsius ) R = ke. When the return on investing is greater than its cost of equity capital. the house can retained the net incomes. since it has better and more profitable investing chances than the investors. It implies that the return of re-investment of the net incomes is higher than what they earn by puting the dividends income.
In the 2nd instance. the return on investing is less than the cost of equity capital and in such state of affairs the investors will hold a better investing chance than the house. This suggests an optimum dividend policy of 100 % payout. This policy of a full pay-out ratio will maximise the value of the house. Finally. when the house has a rate of return equal to the cost of equity capital. the firms’ dividend policy will non impact the value of the house. Lintner ( 1956 ) presented a position to placing the determiners of corporate dividend payment pattern with the interview of the top directions of 28 houses.
The survey concluded that corporate direction tends to set up mark dividend payouts as a proportion of net incomes and to put their dividend payments to set over clip toward the coveted fraction of net incomes. Establishing a stable dividend hypothesis. Lintner showed the following relation between dividends and net incomes: Dt* = rEt ( 1 ) Where. Dt* = dividend payment per portion during the period T R = the payout ratio Et = firm’s net incomes per portion during period T.
Effectss of Dividends on Stock Prices in Nepal 65
Lintner so developed his above observation as under: Dt –Dt-1 = a + degree Celsius ( Dt*
– Dt-1 ) Where. a = changeless degree Celsius = changeless velocity of accommodation factor.
( 2 )
However. Lintner further developed the equation to explicate the corporate dividends payment pattern by seting the above observations to obtain a partial accommodation theoretical account as follows: Dt = a + b1Et + b2Dt-1 + Et ( 3 ) Where. b1 = chromium b2 = 1- degree Celsius Et = error term during period T Lintner used the above equation to explicate the behaviour of corporate dividend policy along with other variables explicating the stock monetary values utilizing aggregative informations in most of his trials. Friend and Puckett ( 1964 ) provided the relationships between dividends and stock monetary values utilizing arrested development analysis of 110 houses from five industries for the period of 1956 to 1958.
The arrested development consequences Pt = a + bDt + CRt exhibited the strong dividends consequence and comparatively weak retained net incomes effects on three of the five industries. i. e. chemicals. nutrients and steels. Again. the survey tested arrested development equation by adding lagged net incomes monetary value ratio Pt = a + bDt + CRt + vitamin D ( E/P ) t-1. The consequence showed that more than 80 % of the fluctuation in stock monetary values explained by these three independent variables.
Dividends have a prevailing influence in stock monetary values. The survey besides reveals the dividends and maintained net incomes coefficients are nearer to each other than first set of arrested development. Chawla and Srinivasan ( 1987 ) carried out a survey to place the impact of dividend and maintained net incomes on stock monetary value in the Indian context. They attempted to prove the dividend retained net incomes hypothesis and analyze the structural alterations in the estimated dealingss over clip. The consequences indicate that incase of chemical industry both dividends and maintained net incomes significantly explain the fluctuations in portion monetary value.
The impact of dividends is more marked than that of the maintained net incomes. But the market has started the switching towards more weight for maintained net incomes. Kumar and Mohan ( 1975 ) hypothesized that the market monetary value of portion is a map of dividends and maintained net incomes and used the undermentioned arrested development equation: Pit = a + bDit + cRit+ eit ( 4 ) Where. Pit = monetary value of stock I at clip t. Dit = dividend per portion of stock I at clip T and Rit = retained net incomes of stock I at clip t. The estimated coefficients for the two explanatory variables. dividends and maintained net incomes are more or less every bit important. They argued that the dividends hypothesis
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has a small high quality over the maintained net incomes in finding the portion. Systematically. Nishat ( 1995 ) attempted to measure the comparative importance of the dividends vis-a-vis maintained net incomes hypothesis in finding the portion monetary values. He developed the undermentioned theoretical account to compare the dividends and retained net incomes influence on the portion monetary values in extremely profitable growing industries of Pakistan. Pit = ?0 + ?1Dit + ?2Rit ( 5 ) Where. Pit = monetary value of stock I at clip t. Dit = dividend per portion of stock I at clip T and Rit = retained net incomes.
The above theoretical account might do an upward prejudice in the dividends coefficient due to two major grounds. First. the relationship is misinterpreted as it assumed that the peril of the house is uncorrelated with dividend payout and portion monetary values. This job should be eliminated by presenting a variable viz. lagged P/E ratio to mensurate single divergence from the sample mean monetary value net incomes ratio in the old twelvemonth periods as follows: Pit = ?0 + ? 1Dit + ? 2Rit + ?3 [ P/E ] I ( t-1 ) ( 6 ) Where. P/E I ( t?1 ) = monetary value net incomes ratio of the old twelvemonth Second. the income reported by a corporation in any peculiar period is capable to short-term economic and accounting factors.
If monetary values were related to normal than reported income. it would bring forth colored consequences in favour of dividend payout. However. the difference between the dividends and maintained net incomes coefficient might be reduced by utilizing the undermentioned theoretical account. Pit = ?0 + ? 1Dit + ? 2Rit + ? 3Pi ( t-1 ) ( 7 ) Where. Pi ( t-1 ) = portion monetary value of the old twelvemonth Khan ( 2009 ) found the groundss that dividends. retained net incomes and other determiners have dynamic relationship with market portion monetary value in the context of Bangladesh.
The survey suggests that the overall impact of dividends on stock monetary values is relatively better that of maintained net incomes. The expected dividends play an of import function in the finding of stock monetary values whatever determiners. like lagged monetary value net incomes ratio or lagged monetary value. are considered. Akbar & A ; Baig ( 2010 ) considered the sample of 79 companies listed at Karachi Stock Exchange to analyze the consequence of dividend proclamation on stock monetary values for the period of 2004 to 2007.
The survey shows that the proclamation of dividends either hard currencies dividend or stock dividend or both have positive consequence on stock monetary values. Nazir. Nawaz. Anwar. & A ; Ahmed ( 2010 ) besides study the consequence of dividend policy on stock monetary values. Consequences of their survey show that dividend payout and dividend output have important affect on stock monetary values while size and purchase have negative undistinguished affect and earning and growing have positive important affect on stock monetary values. Hussainey. Mgbame. & A ; Chijoke-Mgbame ( 2011 ) studied the impact of dividend policy on stock monetary values. The survey shows the positive dealingss between dividend output and stock
Effectss of Dividends on Stock Prices in Nepal 67
monetary value alterations and negative dealingss between dividend payout ratio and stock monetary value alterations. Their consequences further indicate that the firm’s net incomes. growing rate. degree of debt and size besides causes the alteration in stock monetary value of UK. In context of Nepal. few research plants have been conducted in dividends payout. This survey has been expected to happen a tract in dividend policy to impact market monetary value per portion supplying utile information for all fiscal bookmans. Furthermore. the earlier surveies on dividends need to be updated due to the rapid alterations in fiscal market of Nepal. Manandhar ( 1998 ) studied on dividend policy and value of house to place the determiners of dividend policy in the context of Nepal.
The survey found that dividend per portion and return on equity have positive impact on market capitalisation while gaining per portion. price-earnings ratio. and dividend output have negative impact. It was besides found a positive relationship between dividends and market capitalisation. Pradhan ( 2003 ) besides carried out a survey to find the comparative importance of dividend and maintained net incomes in finding the market monetary value of stock. He found that dividend payment is more of import as opposed to retained net incomes in Nepal. The consequences revealed the customary strong dividends consequence and a really weak retained gaining consequence bespeaking the attraction of dividends among Nepali investors.
The findings suggest that Nepali stock market has non started acknowledging the impact of maintained net incomes. Chhetri ( 2008 ) has explained that there are differences in fiscal place of high dividend paying and low dividend paying companies. The survey revealed that there is a positive relationship between dividends and stock monetary values. Further. the coefficient of dividends is higher as compared to the coefficient of maintained net incomes. The empirical findings of dividend researches have produced assorted consequences. Some found positive relationship between the dividend theories and the corporate dividend policy. while others did non. The theories on behaviour of corporate dividend policy suggest that dividend policy is a residuary determination.
The monetary value reactions to dividend alterations are stronger for high dividend-yields stock. Similarly. groundss are found on the being of dividend signaling effects. The induction and addition in dividends has a important positive impact on stock monetary value. From the above surveies. it is obvious that surveies were more concerned with impact of dividends on stock monetary value and dividend policy. The findings of these surveies are non consentaneous across all sectors and clip periods for explanatory variables and its impact on stock monetary value. The ground behind this is the difference in methodological analysis. sample size. and clip. However. surveies found that the dividend has a important impact on market stock monetary values than other explanatory variables.
III. SOURCES OF DATA AND NATURE OF STUDY
This survey is based on secondary informations obtained from published one-year studies of sample houses. The secondary information has been collected from listed companies in Nepal stock exchange ( NEPSE ) . The sample includes banking and non-banking houses of Nepal. It includes the balance sheet. income statement and hard currency flow statement of sample banking and non-banking company listed in NEPSE. All listed companies are required to subject their one-year study including audited fiscal statement within specific period as prescribed by the Security Exchange Act and Regulation in Nepal. Corporate houses are categorized in different industries such as commercial Bankss. development Bankss. finance companies. insurance companies. hydropower. fabrication and processing industries. trading. hotels and others.
Among these industry. commercial Bankss. development Bankss and finance companies are considered as banking sector and remainder of the industries are considered as non-banking sectors. Several companies’ portions are traded actively in stock market of Nepal. Table 1: Sample banking and non-banking houses Industry Commercial bank Development bank Finance company Hotel Manufacturing and treating Hydropower Insurance Trading Company Others Population ( as per listed in NEPSE ) 24 61 71 4 18 4 21 3 4 Sample Firms 22 34 61 4 14 4 19 3 2
The entire population of the survey is 210 companies which are listed in Nepal Stock Exchange for financial twelvemonth 2010/11. Though there are 210 companies listed in Nepal Stock Exchange Ltd. . all are of them are non provide range for this survey. On the other manus. many of them are new and have begun their operation. Therefore. out of 210 companies 163 have been selected for the survey on the footing of handiness of informations which includes 117 companies from banking sector and 46 from non-banking sector. The higher figure of sampled houses from banking sector is selected for the survey due to the big figure of listed companies are from banking sector in NEPSE.
IV. SPECIFICATION OF THE MODEL
Apparently the surveies conducted by Miller and Modigliani ( 1961 ) . Friend and Puckett’s ( 1964 ) and Chawla and Srinivasan ( 1987 ) have influenced this paper. The Friend and Puckett’s ( 1964 ) theoretical account can be taken as the cardinal elements for finding the relationships of market monetary value per portion with concerned fiscal indexs such as maintained net incomes. lagged monetary value net incomes ratio and lagged market monetary value per portion in this survey.
The conjectural statements of the theoretical account is that the monetary value of a portion depends on dividends. maintained net incomes. gaining per portion. lagged monetary value net incomes ratio and lagged market monetary value of portion. This theoretical statement could be framed as: In equation Pit = a + b1Dit + b 2Rit + eit ( 8 )
Where. Pit = Price of portion in time‘t’ Dit = Dividend per portion in time‘t’ Rit = Retained net incomes per portion in time‘t’ eit = Error term Modifying the above equation. this survey uses lagged monetary value gaining multiplier ( monetary value net incomes ratio ) . The modified equation for the survey is: Pit= a + b1Dit+ b2Rit + b3P/Ei ( t -1 ) + eit ( 9 ) Where. P/Ei ( t -1 ) = Lagged monetary value net incomes ratio in time‘t-1’
It is expected that the coefficient of both dividends and maintained net incomes should be positive in the monetary value equation. The variable P/Ei ( t -1 ) is added to maintain the steadfast consequence invariable. Again. this research uses lagged market monetary value alternatively of lagged P/E ratio and developed the undermentioned theoretical account. Pit = a + B 1Dit+ b2Rit+ b3P I ( t -1 ) + eit ( 10 ) Where. P I ( t -1 ) = Lagged market monetary value in time‘t-1’ The market monetary value is considered as stoping of each financial twelvemonth.
V. EMPIRICAL ANALYSIS
Descriptive Statistics In this survey. descriptive statistics includes the information of dividend per portion. retained net incomes per portion. market monetary value per portion lagged P/E ratios and lagged market monetary value per portion of each sample houses for the period of 2005 to 2010 which has been presented in pie-chart and saloon diagrams. With the aid of descriptive analysis. the categorization of sample houses and comparing of sample houses based on sector is presented. The average value of sample houses under sector is computed to do comparing of sectors.
The average value gives the consequence of the norm of each sector. The descriptive statistics are supported by saloon diagram and piechart depicting the related variable i. e. EPS. MPS. DPS. REPS etc. Table 2: Categorization of sample houses based on banking and non-banking sector Population Sample Institution Observations ( as per listed in NEPSE ) Firms Banking sector 156 117 424 Non-banking sector 54 46 146 Entire 210 163 570
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The above tabular array shows that out of 210 listed houses in NEPSE. 163 houses have been selected for the survey on the footing of handiness of informations. Among them. the banking houses include 117 houses and 46 non-banking houses. The tabular array reveals that the sample houses include 72 % from banking sector and 28 % from non-banking sector. The survey focused on the dividends impact on stock monetary value of banking and non-banking sector. The comparative descriptive statistics of these houses and their analysis are as follows: Figure 1: Comparative Analysis
Figure-1 shows the comparative analysis of banking and non-banking sector in which the mean. DPS. and lagged P/E ratio is higher in non-banking sector. However. average value of MPS. REPS. and lagged MPS is higher in banking sector. Regression Analysis A figure of surveies have noted that addition in dividends lead to portion monetary value grasp. It is by and large held that the portion monetary value depends upon the outlook of future net income. For sector-wise arrested development analysis this survey chiefly considers two sectors i. e. banking and non- banking sector. It is non to take conclusive between additive and logarithmic consequences on statistical footing.
The logarithmic reduces the job of arrested development weight. The additive arrested developments. unlike the logarithmic relation. can manage satisfactorily really little and negative retained net incomes ( Friends and Puckett. 1964 ) . Therefore. the line drive arrested development has been considered for the survey. 1. Impact of Dividends and Retained Net incomes on Stock Price The arrested development consequences holding two independent variables are presented as in the tabular array below. It presents the multiple additive relationships between stock monetary value. dividends and maintained earrings. Table 3: Arrested development of stock monetary value on dividends and maintained net incomes Pit = a + b1Dit + b2Rit + eit
( Pit. Dit and Rit represents market monetary value per portion. dividend per portion and retained net incomes per portion severally. The mark * and ** denote the significance of coefficient at 5 % and 1 % degree of significance ) Sector ( Observations ) Total Sector ( n=554 ) ‘p’ value Banking Sector ( n=411 ) ‘p’ value Non-banking sector ( n=143 ) ‘p’ value a 341. 78 ( 0. 000** ) 218. 00 ( 0. 000** ) 282. 38 ( 0. 000** ) b1 12. 51 ( 0. 000** ) 22. 68 ( 0. 000** ) 9. 15 ( 0. 000** ) Regression coefficient b2 R2 3. 04 0. 335 ( 0. 000** ) 5. 03 0. 365 ( 0. 000** ) 2. 36 0. 588 ( 0. 000** ) SEE 652. 80 650. 67 484. 19 F 139. 19 ( 0. 000** ) 117. 33 ( 0. 000** ) 100. 78 ( 0. 000** )
The consequence explain that one rupee addition in dividends leads to the 12. 51. 22. 68 and 9. 15 rupees increase in market portion monetary value in entire. banking and non-banking sector severally. The consequence depicted that the coefficient of dividends and maintained net incomes is important in banking. non-banking and entire sector at 1 % degree of significance. The result of the arrested development analysis implies that there is a direct relationship between dividends and retained net incomes with market portion monetary value in both sectors which is expected mark as old surveies.
The of import point to be noted here is that the F-statistics for the arrested development theoretical account is important at 1 % degree of significance indicating that the arrested development equation provides statistically important account of fluctuation in the market portion monetary value of banking and non-banking sector. Sing the arrested development theoretical account. Pit = a + b1Dit + b2Rit + eit. coefficient of dividends is higher as comparison to the coefficient of maintained net incomes in entire. banking and non-banking sector as good. The consequence indicates that there is a strong positive relationship between dividends and portion monetary value. Further.
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dividend has a prevailing impact on stock monetary values in both banking and non-banking sector. 2. Impact of Dividends. Retained Net incomes and Lagged P/E Ratio on Stock Price As past earning shows the path of the company. these earning may benchmark for the investor to make up one’s mind whether to keep or purchase the portion of the company at the prevalent monetary value. It may now be practical to see the consequences of arrested development theoretical accounts by integrating the lagged monetary value net incomes ratio as one of the more independent variable in the above mentioned equation. The tabular array below presents the arrested development consequences of stock monetary value on dividends. retained net incomes and lagged monetary value net incomes ratio. Table 4: Arrested development of stock monetary value on dividends. maintained net incomes. and lagged monetary value net incomes ratio Pit = a + b1Dit+ b2Rit + b3P/E I ( t -1 ) + eit
( Pit. Dit. Rit and P/E I ( t?1 ) represents market monetary value per portion. dividend per portion. retained net incomes per portion and lagged monetary value net incomes ratio severally. The mark * and ** denote the significance of coefficient at 5 % and 1 % degree of significance ) Sector ( Observations ) Total Sector ( n=383 ) ‘p’ value Banking Sector ( n=289 ) ‘p’ value Non-Banking Sector ( n=94 ) ‘p’ value a 344. 07 ( 0. 000** ) 104. 99 ( 0. 075 ) 288. 05 ( 0. 000** ) b1 15. 05 ( 0. 000** ) 27. 23 ( 0. 000** ) 10. 87 ( 0. 000** ) Regression coefficient b2 b3 R2 2. 27 1. 85 0. 397 ( 0. 003** ) ( 0. 001** ) 5. 17 4. 94 0. 67 ( 0. 001** ) ( 0. 000** ) 1. 79 0. 93 0. 662 ( 0. 005** ) ( 0. 053 ) SEE 705. 40 672. 19 512. 81 F 83. 51 ( 0. 000** ) 83. 51 ( 0. 000** ) 59. 35 ( 0. 000** )
The result presented in above tabular array shows that the estimated coefficient has expected positive mark for dividends. retained net incomes and lagged monetary value net incomes ratio in entire. banking and non-banking sector. The consequence shows the strong dividends consequence bespeaking attraction of dividends among Nepali investors. In the instance of entire sector. the coefficient of dividend is 15. 05. which signify that one rupee alteration in dividend leads to 15. 05 rupees alterations in market monetary value per portion. In the instance of banking sector. the coefficient of dividend is 27. 23. which indicates that one rupee addition in dividend leads to 27. 23 rupees additions in market monetary value per portion. Similarly. in instance of non-banking sector. coefficient of dividend is 10. 87. which indicates that one rupee addition in dividend leads to 10. 87 rupees increase in market monetary value per portion.
The coefficient is statistically important in entire. banking and non-banking sector at 1 % degree of significance. In instance of maintained net incomes. the mark of coefficient is positive as expected for entire sector. The coefficient of maintained net incomes is 2. 27. 5. 17 and 1. 79 in entire. banking and non-banking sector severally. The maintained earning coefficient is besides important in all classs at 1 % degree of significance. In add-on. the dividend has greater impact than the maintained net incomes on stock monetary value. The F-statistics for the arrested development theoretical account is important at 1 % degree of significance indicating that the arrested development equation provides statically important account of fluctuation in the stock monetary value of all classs i. e. sum. banking and nonbanking sector.
A lagged monetary value net incomes ratio is important in entire and banking sector at 1 % degree of significance nevertheless it is non important in non-banking sector at 5 % degree of significance. There is a positive relationship between monetary value and lagged monetary value net incomes ratio in entire. banking and non-banking sector. The survey see the arrested development theoretical account. Pit = a + B 1Dit+ B 2 Rit + b 3 P/E I ( t -1 ) + eit where the consequence shows that the coefficient of dividends is higher than that of the coefficient of maintained net incomes in all sectors.
There is a positive relationship between dividend and stock monetary value. The
dividend has a greater impact on stock monetary values in both banking and non-banking sector. 3. Impact of Dividends. Retained Net incomes and Lagged Market Price on Stock Price As in the past. market monetary value shows the tract of the company. these earning may benchmark for the investor to make up one’s mind whether to put or non at the prevalent monetary value. It may now be practical to see the consequences of arrested development theoretical accounts by integrating the lagged market monetary value alternatively of lagged P/E ratio. Table-5 nowadayss the arrested development consequences of stock monetary value on dividends. retained net incomes and lagged market monetary value.
Table 5: Arrested development of stock monetary value on dividends. retained net incomes and lagged market monetary value Pit = a + b1Dit+ b2Rit + b4P I ( t -1 ) + eit Pit. Dit. Rit. and P I ( t ?1 ) represents market monetary value per portion. dividend per portion. retained net incomes per portion and lagged market monetary value per portion severally. The mark * and ** denote the significance of coefficient at 5 % and 1 % degree of significance ) Sector ( Observations ) Total ( n=382 ) ‘p’ value Banking ( n=288 ) ‘p’ value Non-Banking ( n=93 ) ‘p’ value a 102. 64 ( 0. 000** ) 46. 31 ( 0. 131 ) 49. 36 ( 0. 083 ) b1 5. 35 ( 0. 000** ) 12. 10 ( 0. 000** ) 2. 10 ( 0. 000* ) b2 0. 65 ( 0. 111 ) 1. 37 ( 0. 116 ) 0. 62 ( 0. 030* ) Regression coefficient b3 R2 0. 84 0. 829 ( 0. 000** ) 0. 77 0. 829 ( 0. 000** ) 0. 97 0. 934 ( 0. 000** ) SEE 374. 89 380. 61 225. 85 F 618. 74 ( 0. 000** ) 462. 55 ( 0. 000** ) 433. 11 ( 0. 000** )
The result presented in above table-5 shows ; the coefficient of dividend is 5. 35 in entire sector. which signify that one rupee alteration in dividend leads to 5. 35 rupees change in market monetary value per portion. In the instance of banking sector. the coefficient of dividend is 12. 10. which indicates that one rupee addition in dividend leads to 12. 10 rupees additions in monetary value per portion. Similarly. in instance of non-banking sector. coefficient of dividend is 2. 10. which indicates that one rupee addition in dividend leads to 2. 10 rupees increase in market monetary value per portion.
The coefficient is statistically important and the mark of coefficient is positive as expected for entire. banking and non-banking sector at 1 % degree of significance. ( First estimation arrested developments utilizing entire sample and so sort the entire sample into different sub-samples ) . In the instance of maintained net incomes. the mark of coefficient is positive as expected for all sectors. The coefficient of maintained net incomes is 0. 65. 1. 37 and 0. 62 in entire. banking and non-banking sector severally. The maintained earning coefficient is besides important in non-banking sector at 5 % degree of significance nevertheless it is non important in entire and banking sector at same degree of significance.
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In instance of lagged market monetary value. the mark of coefficient is positive as expected for all sector. The coefficient of lagged market monetary value is 0. 84. 0. 77 and 97 in entire. banking and non-banking sector severally and the coefficient is important for all sectors at 1 % degree of significance. The F-statistics for the arrested development theoretical account is important at 1 % degree of significance indicating that the arrested development equation provides a statistically important account of fluctuation in the market portion monetary value of entire. banking and non-banking sector.
As consider in the arrested development theoretical account. Pit = a + b1Dit+ b2Rit + b3Pi ( t -1 ) + eit. the coefficient of dividends is higher than the coefficient of other variables in all sectors. The dividend has a strong impact on market stock monetary values in both banking and non-banking sector. The overall consequence shows that the value of R2 is increased when explanatory variable lagged market monetary value is utility for lagged P/E ratio. The consequence is consistent with the survey of Pradhan ( 2003 ) and Chawla and Srinivasan ( 1987 ) .
VI. Decision
After holding observed the impact of dividends on stock monetary value of Nepali stock market. it is found that DPS is a actuating factor in the Nepali fiscal sector which is strong plenty to increase market monetary value per portion of the banking and non-banking houses. Relatively. it is besides found that the consequence of DPS greater than REPS on the impact of market monetary value per portion. Lagged market monetary value per portion is an gas pedal to increase market monetary value per portion in subsequent old ages. Finally. the survey shows that dividends and maintained net incomes significantly explain the fluctuations in portion monetary value in both banking and nonbanking sectors. The impact of dividend. nevertheless. is much more marked than that of the maintained net incomes. The relation of dividends and maintained net incomes on portion monetary value is positive in all instances.
Mentions
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