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Effects of Dividends on Stock Prices in Nepal

Author

Listed:
  • Rabindra Joshi

    (Tribhuvan University)

Abstract

This paper 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.

Suggested Citation

  • Rabindra Joshi, 2012. "Effects of Dividends on Stock Prices in Nepal," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 24(2), pages 61-75, October.
    • Handle: RePEc:nrb:journl:v:24:y:2012:i:2:p:5
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    References listed on IDEAS

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    1. Muhammad Akbar & Humayun Habib Baig, 2010. "Reaction of Stock Prices to Dividend Announcements and Market Efficiency in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 103-125, Jan-Jun.
    2. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    3. Black, Fischer & Scholes, Myron, 1974. "The effects of dividend yield and dividend policy on common stock prices and returns," Journal of Financial Economics, Elsevier, vol. 1(1), pages 1-22, May.
    4. Khaled Hussainey & Chijoke Oscar Mgbame & Aruoriwo M. Chijoke-Mgbame, 2011. "Dividend policy and share price volatility: UK evidence," Journal of Risk Finance, Emerald Group Publishing, vol. 12(1), pages 57-68, January.
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    Cited by:

    1. Anureet Virk Sidhu & Pooja Jain & Satyendra Pratap Singh & Jagjeevan Kanoujiya & Aashi Rawal & Shailesh Rastogi & Venkata Mrudula Bhimavarapu, 2023. "Impact of Financial Distress on the Dividend Policy of Banks in India," JRFM, MDPI, vol. 16(2), pages 1-13, February.
    2. Khoo De Kai & Ismail Bin Abd Rahman, 2018. "The Impact of Financial Indicators towards Stock Returns of Finance Companies Listed on Bursa Malaysiae," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(3), pages 128-140, July.
    3. ALASHE, Abdulganiyy Kayode & ISHOLA, Joseph Olaniyi, 2021. "The Impact of Dividend Policy on Stock Prices in Money Deposit Banks in Nigeria (1994-2019)," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 8(12), pages 31-37, November.
    4. Muzammal Ilyas Sindhu & Shujahat Haider Hashmi & Ehtasham Ul Haq, 2016. "Impact of ownership structure on dividend payout in Pakistani non-financial sector," Cogent Business & Management, Taylor & Francis Journals, vol. 3(1), pages 1272815-127, December.
    5. Byson Beracah Majanga, 2015. "The Dividend Effect on Stock Price- An Empirical Analysis of Malawi Listed Companies," Accounting and Finance Research, Sciedu Press, vol. 4(3), pages 1-99, August.
    6. Prakash Kumar Shrestha Ph.D. & Biggyan Raj Subedi, 2014. "Determinants of Stock Market Performance in Nepal," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 26(2), pages 25-40, October.

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    More about this item

    Keywords

    Dividents; stock price; banking and non-banking sector; multuvariate linear regression analysis;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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