1.

Background of the Study

The history of Capital market is not too long in Nepal. Capital market begun in Nepal
with the IPO of Nepal Bank Limited and Biratnagar jute mills in 1937 AD. Securities
Exchange center was established in 1976 AD with an objective of facilitating and
promoting the growth of capital; later converted into Nepal stock Exchange whereas,
Nepal Stock Exchange (NEPSE) trading floor began on 1994 AD.
Stock market is the mirror of economy. Stock markets are essential for economic
growth as they insure the flow of resources to the most productive investment
opportunities (Kurihara, 2006). Since large numbers of people are directed toward stock
market and we are also aware about the volatility in stock market, so to safeguard the
investors’ investment on stocks this research will be directed toward identifying the
factors affecting the stock price. A volatile stock market makes it difficult for the
accounting and financial variables to accurately predict the stock price (Feris & Erin,
2018). Generally, the price of share is determined by the demand and supply of the
market. But there are many other qualitative and quantitative forces that determine the
price of the stock. Some of the major determinants of share price are earning per share
(EPS) of the company, dividend payout ratio or dividend per share (DPR or DPS), price
earnings ratio (PE ratio), book value per share(BVPS), return on equity (ROE), size of
the firm, NRB policy, monetary policy, interest rate, political conditions, Gross
Domestic Product (GDP), information, news and rumors, corporate governance, board
of directors of the company and many other factors.(Shiller,1985) found that stock
prices are not stable and fluctuate excessively in relation to the news about
fundamentals, such as dividend and bonus, due to the irrational investors in the market.
Thus, understanding the impact of various fundamental variables on stock price is very
much helpful to investors as it will help them in taking profitable investment decisions.
Since the NEPSE index is mostly dominated by the banking and financial institutions
sector the main objective of this study is to investigate the relationship between the firm
specific variables and market price per share in Nepalese commercial banks. Specially,
it examines the impact of earning per share, dividend per share, book value per share,
price earnings ratio and return on equity.

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2. Problem statements

Basically, stock price is determined by demand and supply. But there are many other
qualitative and quantitative factors that determine the stock price. It is unpredictable to
specify exactly what factors determine the stock price. The shares of the commercial
bank play a vital role in the overall index of NEPSE and the overall index is highly
influenced by the share price of the commercial banks. The shares of the publicly
quoted commercial banks seem to the basis of investment to all potential investors.
Only few investors of Nepalese share market are aware of the causing agent of
share price. It means most of the investors are unknown about the financial performance
of the company but tends to invest on the company without proper financial analysis. It
causes the unusual relation of the financial indicators EPS, BVPS, DPS, PE ratio etc.
with the market price of the share. In this context, this study will try to identify the
determinants of stock price and find out the degree of affection of those determinants.
Therefore this present study is carried out to answer the following research questions:
a) What are the major factors that affect the stock price in Nepal Stock Exchange
(NEPSE)?
b) What is the effect of the Earning per share (EPS), Dividend per share (DPS), Price
earnings ratio (P/E ratio) and Return on equity (ROE) on the stock price?

3. Objectives of the Study

The main objective of this study is to identify the factors respective for determinants of
stock price and their relationship with the stock price, so that it will give a better insight
into the stock price. The specific objectives of the study are as follows:
i. To analyze the major determinants that affects the stock price in Nepal Stock
Exchange (NEPSE) with focus to commercial banks.
ii. To examine the effect of Earning per share (EPS), Dividend per share
(DPS), Price earnings ratio (P/E ratio) and Return on equity (ROE) on the
stock price.

4. Hypotheses of the study

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The factors considers market price per share (stock price) as dependent variable and
Price earnings ratio, earning per share, return on equity, dividend per share and book
value per share as independent variables.
This study has following hypotheses:

Hypothesis 1 (H1): Price-Earnings ratio (PE ratio) has Positive significant association
on market price per share (MPS).
Hypothesis 2 (H2): Earnings per share (EPS) has Positive significant association on
market price per share (MPS).
Hypothesis 3 (H3): Return on Equity (ROE) has Positive significant association on
market price per share (MPS).
Hypothesis 4 (H4): Dividend per share (DPS) has Positive significant association on
market price per share (MPS).
Hypothesis 5 (H5): Book Value per Share (BVPS) has Positive significant association
on market price per share (MPS).

5. Rational of the study

This study attempts to construct the relation of MPS of the Nepalese commercial banks
taken as dependent variable to the major financial indicators like EPS, BPS, DPS, PE
Ratio and ROE taken as independent variables. The relation is hoped to show the status
of Nepalese commercial banks with respect to the determiners of share price. These
findings may be helpful to the potential investors, managers of respective banks to
make the better investment decision.

6. Brief Review of literature

The study of Malhotra and 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- 2012 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

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firm’s stock price while dividend yield is having a significant inverse association with
the market price of the firm’s stock.
Almumani and Science (2014) has attempted to identify the quantitative factors that
influence share prices for the listed banks in Amman Stock Exchange over the period
2005-2011 using empirical analysis of a set of independent variables such as: DPS,
EPS, BVPS and PE ratios and market price as dependent variable. In the study, the ratio
analysis, correlation and a linear multiple regression models have been selected to
measure the individual as well as combined effects of explanatory variables on the
dependent variables. The empirical findings show that there is a positive correlation
between the independent variables DPS, EPS, BVPS, PE with dependent variable MP.
Moreover, there is a significant relationship between banks BVPS and MP. Another
empirical finding from the regression analysis shows a positive relationship between
P/E and MP. Finally, other variables DPS have insignificant impact on market price.

Jermsittiparsert et al. (2019) conducted a study with a view to analyze the riskreturn
through financial ratios as determinants of stock price in ASEAN region. The sample
comprises 10 firms from Malaysia, Indonesia, Thailand and Singapore. The study used
multiple regression technique to determine the impact of exogenous variable on stock
price. The result reveals that price earnings ratio and return on equity are the significant
variables that statistically impact on the determination of stock price in ASEAN
markets.
Bhattarai (2014) has undertaken this study to clarify the determinants of share price of
commercial banks listed on the Nepal Stock Exchange over the period of 2006 to 2014.
Data were sourced from the annual reports of the nine commercial banks and analyzed
using regression model. The finding of the study revealed that earning per share and
priceearnings 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.
Ghimire & Mishra (2018) examined the eleven financial and non-financial firms of
NEPSE, Nepal, during the period 2012-2017. He concluded that the relationship
between stock price and explanatory variables e.g. DPS, EPS, P/E ratio, BPS, M/B
ratio. The predictors M/B ratio, P/E ratio, are significant determinants of stock price
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which affect the stock price. Similarly, DPS, and BPS had positive influence on stock
price whereas EPS has minimum influence on the stock price listed in NEPSE.

7. Research Methodology

1.1.1 Research Design

This study will use descriptive as well as analytical research design. The study will use
Earning per share (EPS), Price-Earnings ratios (PE ratios), Dividend per Share (DPS),
Return on equity (ROE), and Book Value per Share (BVPS) as the major determinants
of stock price of commercial banks.

1.1.2 Population and Sampling Procedure

There are 27 commercial banks in Nepal (NRB, 2021). Therefore, the population for the
study is 27 Nepalese commercial banks. Out of them, 10 commercial banks will be
selected using judgmental sampling method. The proposed sample commercial banks
for the study are as follows:
i. Nabil Bank Ltd
ii. Standard Chartered Bank Ltd
iii. Everest Bank Ltd
iv. NIC Asia Bank Ltd
v. Nepal SBI Bank Ltd
vi. NMB Bank Ltd
vii. SANIMA Bank Ltd
viii. Siddartha Bank Ltd
ix. Prime Commercial Bank Ltd
x. Global IME Bank Ltd

1.1.3 Nature and sources of data collection

The study will use secondary data which was published by sampled commercial banks.
This study will cover 5-years data from 2016/17 to A.D. to 2020/21 A.D. The required
information and data will be collected from annual audit report of commercial banks.

1.1.4 Research framework and definition of variables

The research framework study is as follows:

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Price Earnings Ratio (P/E Ratio)

Earnings per Share (EPS)

Dividend per Share (DPS) Stock Price (MPS)

Return on Equity (ROE)

Book value per share (BVPS)

Independent variables Dependent variable

Figure 1: Research framework of factors affecting share price of commercial banks

 Stock price (MPS): The market price of shares is that the price in which the
shares are traded or the amount, which is paid by the buyer to the seller to
purchase a stock of a company. The market price of shares varies from one
company to another. The market values per share of common stock is the
function of the current and expected future dividend of the company and the
perceived risk of the stock on the part of investors (Van Horne and Wachowicz,
2000:546).
 Price Earnings Ratio (PE Ratio): PE ratio as a common measure used to
indicate market assessment of a company’s performance. It is used to assess the
company’s appraisal of share value. It measures the amount that investors are
willing to pay for each rupee of the firm’s income. The higher the PE ratio, the
greater the investor confidence. Higher PEs are often taken to mean the firm has
significant prospects for future growth (Constand,Freitas,and Suillivan ,1991)
PE ratio may be restated as:
PE ratio = stock price (Po) / earnings per share (EPS)
 Earnings per Share (EPS): It is the ratio of the profit after tax of the company
for any financial year after the payment of preference dividend. The equity share
holders are the sole claimer of the net earnings of the corporation after making
payment of dividend to the preference shareholders. They also stated that the

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 significance of this ratio flows from the fact that higher the earnings per share
the more is the scope for a higher rate of dividend and also of retained earnings,
to build up the inner strength of the company ( Geetha and
Swaaminathan ,2015)
It is computed as:
EPS= (Net profit after tax- Preferred dividend)/Number of outstanding shares
 Dividend per Share (DPS): Geetha and Swaaminathan (2015) have stated it as
the portion of the profit after tax, which is distributed to the shareholders for
their investment bearing risk in the company. DPS shows how much the
company has paid out as a dividend. It refers to the actual amount of dividend
i.e. gross dividend declared per share. The net profit after taxes belongs to
shareholders but the income that they really receive is the amount of earnings
distributed and paid as cash dividend.
It is computed as:
DPS= Dividend/Number of outstanding shares
 Return on Equity (ROE): It a profitability ratio that measures the ability of a
firm to generate profits from its shareholders investments in the company
(Sharif, Purohit, and Pillai (2015). Generally, the higher the return on equity, the
better off is the owners.
It is computed as follows:
ROE= earnings available to common stock holders / Shareholders equity
 Book Value per Share (BVPS): Book value is also known as net asset value
per share because it measures the amount of assets, which the corporation has on
behalf of each equity share. BV shows the net investment per share made in
business by the shareholder. It is the value at which an asset is carried on a
balance sheet (Bondt, 2008).
It is computed as follows:
BV=(Reserve+Equity Capital-Revaluation Reserve)\Number of outstanding
shares

Regression Model
The Multiple Regression equation is:
Y = βo + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + εi

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Y= MPS represent the stock price for the commercial banks.
X1= Represent the Price earnings ratio (P/E ratios) for the commercial banks.
X2= Represent the Earnings per Share (EPS) for the commercial banks.
X3= Represent the Dividend per Share (DPS) ratios for the commercial banks.
X4= Represent the Return on Equity (ROE) for the commercial banks.
X5= Represent the Book Value per share (BVPS) for the commercial banks.
βo= Intercept
β1, β2, β3, β4, and β5 = Coefficient of independent variables or slopes of independent
variables
εi = the regression residuals or error terms.

1.1.5 Method of Analysis

This study will be concentrated in Earnings per Share (EPS), Price earnings ratio (P/E
Ratios), Dividend per Share (DPS), Book Value per share (BVPS) and the Return on
Equity (ROE) as determinants of Stock price (MPS) of Commercial banks of Nepal. It
will use descriptive analysis, correlation analysis, and regression analysis to observe
and test the hypotheses as analysis tools.
A correlation coefficient is done to find the multi-collinear relationship between the
independent variables e.g. Earnings per Share (EPS), Price earnings ratio (P/E Ratios),
Dividend per Share (DPS), Book Value per share (BVPS) and the Return on Equity
(ROE) and the dependent variable the stock price (MPS). A correlation analysis is
basically used to test the relationship between the independent and the dependent
variable and is used for testing whether multicollinear relationship can be found
between them. The final model used is step-wise multiple regression models, this model
becomes helpful to find if the five selected financial ratios are good predictors of stock
price or not. The model comprises ANOVA Table, Coefficient, Standard Error, t-stat
and p-value.

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Refrences:

Bashu Neupane (2019). Impact of Selected Variables on Stock Price With reference to
Nepalese Commercial Banks: Silver Jubilee Issue PRAVAHA, Volume 25 Issue 1 ISSN
2350-854X
Yuga Raj Bhattarai (2014). Determinants of Share Price of Nepalese Commercial
Banks: Economic Journal of Development Issues Vol. 17 & 18 No. 1-2 (2014)
Combined Issue
Dipendra Karki (2018). Fundamentals of Common Stock Pricing: Evidence from
Commercial Banks of Nepal: SAARJ Journal on Banking & Insurance Research 7 (1),
4-32
Ramesh Raj Ghimire & Deepashree Mishra (2018). Determinants of Stock Price in
Nepalese Market: International Research Journal of Management Science. 3, (Dec.
2018), 123–135
Prem Prasad Silwal and Prem Prasad Silwal (2019). Fundamentals of Stock Price in
Nepalese commercial banks: International Research Journal of Management Science,
Vol.4, Issue 1 - ISSN 2542-2510
Krishna Bahadur Thapa (2019). Influencing Factors of Stock Price in Nepal: NCC
Journal, 4(1), 113–120
Ambika Dhakal (2019). Firm specific determinants of Stock Price - The Case of the
Finance companies listed in Nepal Stock Exchange: SSRG International Journal of
Economics and Management Studies (SSRG-IJEMS) – Volume 6 Issue 9 – Sep 2019
Dr Radhe S. Pradhan and Subash Dahal (2016). Factors affecting the Share price:
Evidence from Nepalese commercial banks: SSRN Electronic Journal
Kukuh Hadi Prayogo and Etty Puji Lestari (2018). The Determinant of Stock Price at
the Banking Sub-sector Company in Indonesia Stock Exchange: International Journal
of Trade, Economics and Finance, Vol. 9, No. 6, December 2018
Zeeshan Arshad ,Ali Raza Arshad,Sohail Yousaf and Sulaman Jamil (2015) .
Determinants of Share Prices of listed Commercial Banks in Pakistan: IOSR Journal of
Economics and Finance (IOSR-JEF), e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume
6, Issue 2. Ver. III (Mar.-Apr. 2015), PP 56-64

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Saurav Ratna Bajracharya & Dr Ousanee Sawagvudcharee (2019). Internal and External
Factors Influencing Shares Price of Nepalese Commercial Banks: Journal of
Management Science and Research, 2(1), 66–77
SEBON (2019). SEBON Journal Volume -VII 2019

Thesis :

Laxmi Dhakal(T.U. Regd.No.-7-1-218-585-98), (Exam Symbol no:- 5800003): Factors

affecting Share price of Commercial Bank.
Ambika Upadhaya (T.U Regd.No.-7-2-431-01-2003),(Exam Symbol no-441/063):
Impact of stock price behavior entitled in Nepal Stock exchange.

Websites:

https://www.nepjol.info/

https://www.researchgate.net/

http://financedocbox.com/

https://www.academia.edu/

https://www.nrb.org.np/

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Annual Reports:
Nabil Bank Limited. (2016/17 to 2020/21). Annual Report. NABIL.
NIC Asia Bank Limited. (2016/17 to 2020/21). Annual Report. NICA
Nepal SBI Bank Limited. (2016/17 to 2020/21). Annual Report. SBI
Everest Bank Limited. (2016/17 to 2020/21). Annual Report.EBL
Siddartha Bank Limited. (2016/17 to 2020/21).Annual Report. SBL
Standard Chartered Bank Limited. (2016/17 to 2020/21).Annual Report. SCB
NMB Bank Limited. (2016/17 to 2020/21).Annual Report. NMB
SANIMA Bank Limited. (2016/17 to 2020/21).Annual Report. SANIMA
Prime Commercial Bank Limited. (2016/17 to 2020/21).Annual Report. PCBL
Global IME Bank Limited. (2016/17 to 2020/21).Annual Report. GBIME
Nepal Stock Exchange .( 2016/17 to 2020/21).Annual Report. NEPSE

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