CHAPTER I

INTRODUCTION

1.1 Background of the Study

Globalization of economies and market has been one of the major instruments of
change. Due to globalization, a small sort of change occurred in one sector of
economy affects the other sector too. With the result of dynamics of global changes
and development, securities markets are rapidly responding. Therefore, securities
market has become global phenomena. Security market index is perceived as an
indicator of investors' confidence to invest in securities, which obviously, measures
economic pulses of that nation. As capital market is a crucial element in the national
economy, its role in reinvigorating and boosting the economic activities in the
country holds significance. It helps to mobilize domestic resources as well as protect
the interest of investors. It plays a significant role to provide the best investment
opportunity by transferring the funds from surplus sector to deficit sector through
transaction of long-term financial securities.
The efficient stock market and the role of Commercial Bank occupy an important
place in financial management as both of these provide capital for the development
of industry, trade and business. These financial activities inspire the savers to save
and either deposit in bank where bank generates credits or invest in stock that
supplies capital to the enterprises. Beside these, commercial bank renders numerous
services to their customer in view of facilitating their economic and social life. All
the economic activities of each and every country are highly influenced by the
commercial banking business as well as stock business of that country. This study
aims to explore stock movement and financial performance of Commercial Banks in
Nepalese capital market.
No doubt, having a capital deficit economy, Nepal requires a huge amount of
investment in productive activities for rapid economic development. Though a
decade has passed since Nepal embarked on the path towards open market economy
and liberalization policies, there are still a number of problems associated with it.
Lack of proper commitment towards implementation of policies, rampant
corruption, social and business insecurity and improper coordination between
government and private agencies, has affected the overall performance of Nepalese

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economy. Despite these shortcomings, capital market has been the most important
sector of the Nepalese economy. The capital market offers the opportunity for
investors to invest in the long-term ventures and also imparts liquidity to the security
holders' by converting the securities of investors into liquid cash before the maturity
of project.
In simple sense, securities market is a place where people buy and sell financial
instruments. Although securities markets are concentrated in a few locations, they
refer more to mechanism, rather than to physical locations designed to facilitate
exchange of securities like government bonds, corporate bonds or debentures,
ordinary shares, preference shares etc. Therefore, securities market can be defined as
a mechanism for bringing together buyers and sellers of financial assets in order to
facilitate trading.
The history of capital market in Nepal dates back to the era of Rana Prime Minister
Judha Samsher, when Gunjman Singh, the first secretary at the Nepalese Embassy in
England returned back to Kathmandu and set up to Industrial council. It drafted the
company Act and Nepal bank Act for the first time in 1936 A.D. And Biratnagar
Jute Mills Limited initiated the first public flotation of shares in the securities market
in 1937 A.D. There were very few companies in Nepal issuing shares to general
public until another company Act came into operation in1951. Despite of various
barriers, the profit margins are much higher and capital market is the most booming
sector in Nepalese economy. In this regard Ram Sharan Dangal, an entrepreneur
says it is impossible to take turn for the better without the development of the capital
market.
Capital market can be divided into two segments, i.e. securities market and non-
Securities market Segment. The long termed nature of business debts, installment
debts, commercial debts represented by acceptance bills, accommodation paper etc.
and saving and deposits schemes which are not securities bearing fall under the Non-
securities segment of the market. Security market deals in the financial instruments
such as government bonds, industrial securities, bonds, etc.
A security market can be defined as a mechanism for bringing together buyers and
sellers of financial assets in order to facilitate trading. Security markets are
secondary markets because the financial assets traded on them were issued at some
previous point in time. One of the main functions is price discovery. Price discovery

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is a determination of a fair price for the securities it trades. The interaction of buyers
and sellers in a security market determine the price of the security.
The securities market is basically divided into two parts; namely the primary market
where initial flotation of shares take place, and the secondary market where the
initially floated share are traded ensuring liquidity to the investors in the primary
market.
For the development of capital market, needs the development of both the primary
and secondary market.
Primary market is the market place where instead of goods and services, securities
are sold to mobilize the saving for the establishment and operations of the business.
Securities issued for the first time are traded in the primary market. The issuer may
be a new company or one that has been in business for many years. The first issue of
securities by new established company is called initial issue. Additional securities
issued by existing companies are termed as further issue. There are three ways in
which a company may raise capital in the primary market
 Granting stock subscription right to shareholders (i.e. Right Issue)
 Granting subscription rights to non-share holders (i.e. Allotment to special
group and selected persons)
 Issuing new shares without granting subscription rights (i.e. public offering
& private placement).

Secondary Market is the market place where second hand securities are traded, i.e.
securities that have been previously issued are traded in the secondary market. The
majority of all capital market transactions occur in the secondary market. The
proceeds from sale of securities in the secondary market do not go to the original
issuer but to the owners of the securities. In other words, securities are traded among
the individual as well as institutional investors.
Stock exchanges are considered as an organized secondary market, which are called
voluntary associations of members, who come together for the purpose of buying
and selling securities. Only the securities of listed companies are traded in the stock
exchanges and are bought & sold by auction. However, the secondary market is said
to give liquidity to primary issues, and this liquidity is an essential ingredient in the
capital formation process of the economy. NEPSE is only the secondary market in

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the country. Nepal Stock Exchange, in short NEPSE, operating under Securities
Exchange Act, 1983.
Primary markets facilitate the issuance of new securities, while secondary markets
facilitate the trading of existing securities. Whereas primary market transactions
provide funds for the initial issuer of securities, secondary market transactions do
not. Some securities have a more active secondary market and are therefore more
marketable than others. The issuance of new corporate stocks or new treasury
securities is a primary market transaction, while the sale of existing corporate stocks
or treasury securities holdings by any business or individual is a secondary market
transaction.

1.2 Securities Market in Nepal: History and Development

Security market is a place where buying & selling of securities takes place in
organized way. The history of Security market in Nepal dates back to the era of
Rana Prime minister Judda Shamsher when Gunjaman Singh, the first secretary at
Nepalese Embassy in England returned back to Kathmandu and set up the
“Industrial Council”. The council drafted company act and Nepal Bank Act for the
first time in 1936. Biratnagar Jute Mills Ltd. Initiated the first public floatation of
shares in the securities market in 1937. In the same year, Nepal Bank Ltd also issued
the shares. The ownership of the shares was strictly limited within the Rana
families. Subsequently, the development of capital market remained stagnant.
Almost two and half decade later, government of Nepal issued treasury bills in 1962
and development bonds in 1964. However, there was no security market to provide
liquidity for these bonds until the establishment of Security Exchange Center (SEC)
in 1976.
After the introduction of company act in 1951, the first issued treasury bills and
bond, and the establishment of SEC were some significant developments in the field
of capital markets in Nepal. The establishment of SEC, under the company act was
the foundation stone of institutional development of the securities market.
The function of SEC was very limited on trading government bonds and national
savings certificate only, which had predominantly held by Nepal Rastra Bank. SEC
started secondary market for the corporate securities in 1984.
Securities Board Nepal (SEBON) was established on 26 May 1993 after the first
amendment in the Securities Exchange Act 1983 became effective. After eighteen

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years of incorporation, HMG Nepal converted Security Exchange Center into Nepal
Stock Exchange (NEPSE) on 16 May, 1993, under a programme initiated to develop
a competitive and efficient security market.

Securities Board Nepal (SEBON)

Security board Nepal was established on 26th May 1993, under the provision of the
securities exchange Act, 1983. It was established with the objective of promoting
and protecting the interest of investors by regulating the securities market. Apart
from that, SEBON is also responsible for the development of the security market. To
get the investor’s confidence, it is necessary to make the securities market healthy,
transparent and efficient and with this view the government has provide SEBON
with various authoritative powers.
SEBON has been supervising the stock markets since its establishment. Its
supervisory role has wider scope and extends from the maintenance of company
transparency to the monitoring of brokerage firms. A company that does not fulfill
the requirements placed by SEBO is delisted from the stock exchange due to the
failure to comply with the rules and regulations of the governing body.

Nepal Stock Exchange (NEPSE)

Nepal Stock Exchange, in short NEPSE, was established on 1993 under securities
exchange Act, 1983. Nepal Stock Exchange was known as securities exchange
centre earlier. Securities exchange centre was established with an objective of
facilitating and promoting the growth of capital markets. The major task undertaken
by Nepal Stock exchange are brokerage, undertaking, managing public issue,
marking market for government bonds and other financial services. Nepal Stock
Exchange is a non profit organization operating under Securities Exchange Act
1983. It is the sole organization for the operation of secondary market for listed
security.
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.
It was established with joint effort of Nepal Industrial Development Corporation and
Nepal Rastra Bank to mobilize the public saving for ensuring public ownership in

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the share public limited companies. In order to promote the stock exchange business,
the centre made a series of studies in the beginning regarding both the public limited
companies and undertaking the business of buying and selling of securities
Members of NEPSE are permitted to act as intermediaries in buying and selling of
government bonds and listed corporate securities. At present, there are 23 member
brokers and 2 market makers, who operate on the trading floor as per the Securities
Exchange Act, 1983, rules and bye-laws.
Besides this, NEPSE has also granted membership to issue and sales manager
securities trader (Dealer). Issue and sales manager works as manager to the issue and
underwriter for public issue of securities whereas securities trader (Dealer) works as
individual portfolio manager.
At present there are 11 sales and issue manager and 2 dealers (Secondary market).
At present, 159 companies have listed their securities to make them eligible for
trading. Recently NEPSE has adopted a computerized electronic trading system
replacing the old “Open out-Cry” system. The buying broker with the highest bid
posts the price and his code number in the buying column, while the selling broker
with the lowest offer posts the price and his code number in the selling column in
the computer. The market maker quotes their bid and offer price on their own board
before the floor starts. Once the bid and offer price match, contracts between the
buying and selling brokers or between the brokers and market makers are concluded
on the floor. Currently, NEPSE operates on the ‘NEPSE Automated Trading
System’ (NATS), a fully screen automated trading system, which adopts the
principle of an order-driven market. The stock market automation was supported by
Asian Development Bank (ADB) under the CFG project (The Himalayan Times,
August 25, 2007: 11). NEPSE also adopted T+3 concepts, which allows for
transactions and payments to be settled in three days of an agreement.

1.2 Statement of Problem

Stock market is always being the most important role in modern capital market. And
stock market is becoming one of the most popular investment areas these days.
Because of the globalization of capital markets, the spreading of capital becomes
faster and easier. It is regarded as one of important economic indicators of countries.
After the establishment of Nepal Stock Exchange Limited (NEPSE) in 1994, the
concept of capital market, has emerged and grown within a very span of time. There

6
are various institutions involved in the capital market but they are not showing
positive and good performance as per the investor’s expectation .The problem of
Nepali stock market have not been diagnosed and identified, the policy makers are
unable to make the appropriate policy for the development of the stock market. Most
of the government level efforts for the development of the stock market. The high
movement of share prices may be the outcome of the efficient market behaviors. The
dubious and hazardous movement of share prices has no sound fundamental backing
of analysis and relationship to past results revealed in limited financial statements. It
is because that the share price has crossed the boundary of the calculated dividend
yield, net worth and price multiplies. The reaction is based on the assumption of
strong form of the new market efficiency.
Stock market prediction has always had a certain appeal for researchers & financial
investors. The reason is that who can beat the market, can gain excess profit.
Investors who invest in stock markets usually are not aware of the stock market
behavior. They are facing the problems of stock trading as they do not know which
stocks to buy and which to sell in order to gain more profits. If they can predict the
future behavior of stock prices, they can act immediately upon it and make profit.
The more accurate the system predicts the stock price movement, the more profit
one can gain from the prediction model. This type of problem of stock trading
problem is also facing by the Nepalese investors.
In this context, the research problem of this study can be presented in following
points
1. What are the major determinants of the Stock price of Nepalese Commercial
Banks listed in NEPSE?
2. Is there any relationship between MPS with the major financial indicators
EPS, BVPS and DPS?
3. Are the investors well aware about the trend of financial indicators which
have major influence on determining MPS?
4. To what extent it is possible to predict volatility of share price by using
technical analysis, fundamental analysis and the efficient market hypothesis?

1.3 Objectives of the Study

Every study has its own objective, like wise this study also has its objective.
Investors require proper knowledge of share price i.e. how it is formed, why does it

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fluctuate, what factors are responsible for the determination of its price and so on.
This study aims 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. Furthermore, this study is proposed to meet the following objective:
1. To evaluate the relation of stock price with major financial indicators.
2. To study and evaluate whether stocks of the sampled companies are
overpriced, under priced or equilibrium price.
3. To assess different people’s opinions regarding the causes of fluctuation in
stock price
4. To provide suggestion on the basis of above analysis.

1.4 Significance of the study

Although money doesn't grow more than it does in the capital market, Nepalese
Stock Market is still failure to convert its potential investors into actual investors.
Many investors in Nepal are still unaware about the being doubtful for the
investment due to its fluctuation and scandalous based activities. Beside this there
are also lack of intuitional and professional experts and brokers in Nepalese stock
market to provide the right advice for the investors. Many investors, analysts and
brokers in Nepalese Stock market are still failure to apply the popular techniques
like 'fundamental analysis' for predicting the stock price. Most of the investors are
investing haphazardly in shares rather than analyzing it before investment. Despite
the essential of prediction, predictability in NEPSE is difficult.
Findings of this study is helpful to all the parties involved in the stock market and
commercial banks, since it provides guidance to the investors about the financial
performance of commercial banks. Furthermore, this study helps to predict the
future movement of price from the side of investors because the study analyses the
fundamental analysis. This study attempts to construct the relation of MPS of the
Nepalese commercial banks to the major financial indicators like EPS, BVPS, and
DPS etc. The relation is hoped to show the status of Nepalese commercial banks
with respect to the determiners of share price. These findings are helpful to the
potential investors to make the better investment decision. Moreover, report of this
study is important literature in regarding field in Nepalese context.

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1.5 Limitations of the Study
This study tries to explore the factors determining the stock price in Nepal stock
exchange. This study is done for the partial fulfillment of Masters of Business
Studies. Time constraints, financial problem and lack of research experience are the
primary limitation and other limitations are as follows:
1. This study confine only to Listed Companies of Nepal Stock Exchange and
its members.
2. This research mainly based on secondary data, which have been collected
from books, financial statement and report of the security board of Nepal
(SEBON) and Nepal Stock Exchange and selected company’s annual reports,
company’s web site and other publications. This study covers the
information of only few fiscal years date.
3. Foreign information and rules affecting the share market is ignored.
4. Studies and reference are also extremely limited in the prospective of
Nepalese stock market.
5. Only 5 Companies are taken as sample from the whole listed companies in
NEPSE as population, which may not represent the character of whole
Nepalese stock market.

1.6. Organization of the study

The study concentrates on specific sector i.e. commercial banks. The commercial
banking sector is the most efficient sector among others. This study has been
organized over altogether five chapters. Starting from Introduction, Review of
Literature, Research methodology, Presentation & Analysis of data and summary to
conclusion & Recommendation, to get the result of the entire study. A brief outline
of this chapter has been outlined as under.

Chapter I: Introduction
The First Chapter entitled “Introduction” introduces the subject, the research
problem, objective of the study, along with limitation.

Chapter II: Review of Literature

The second chapter entitled “Review of Literature”, contains the conceptual
framework and past research literature on the subject matter. It presents the analysis

9
of related studies which include different books article, previous thesis reports,
various published and unpublished document. This chapter mainly relates to the
theoretical analysis and brief review of related and pertinent literature available.

Chapter III: Research methodology

The Third Chapter “Research methodology” deals with various methods used to
conduct the study. It consists of research design, nature and sources of data.
Methods used for data analysis and presentation and tools of analysis.

Chapter IV: Presentation & Analysis of data

The fourth chapter, “Presentation & Analysis of data”, contains the presentation,
analysis and interpretation of primary as well secondary data to indicate quantitative
facts of the Stock price behaviour of the listed companies. It also contains analysis
of primary questionnaire.

Chapter V: Summary, conclusion and recommendations

The Last Chapter covers with summary, conclusion and recommendations for the
further research. This chapter tries to fetch out a conclusion of the study and
attempts to offer various suggestions and recommendation for the improvement of
the further performance.

Finally, bibliography and appendix are presented at the end of the study.

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 CHAPTER II
REVIEW OF LITERATURE

2.1 Introduction
Review of literature is a basic requirement for any research. Review of literature
means reviewing research studies or other relevant proposition in the related area of
the study so that all the past studies, their conclusions and deficiencies may be
known and further research can be conducted. It is an integral and mandatory
process in research works. The review of literature helps the researcher to avoid
repetition in the same task.
The basic ideas about the study can be drawn from the review of related literatures
like research writings, different journals, research articles, thesis, newspapers,
published or unpublished bibliographies, books, articles, dissertation etc. It is the
critical summary of previous research report on a specific topic. This chapter has
been divided into the following parts.
i) Conceptual framework
ii) Review of related studies
 Review of thesis
 Review of articles and journal

This chapter deals with the concepts and theories related to the theme of present
study. The basic concern of the study is to focus on the pricing behaviour of the
stocks of the companies listed in Nepalese Stock Exchange. So, in this chapter, an
attempt is made to review some of the literature concerning the stock market in
Nepal. The price behaviour of the stock and its trading activity has got the
tremendous concentration in security investment.

2.2 Conceptual Framework of Financial Market

Conceptual framework is made through the review of different concepts and theories
to direct this study. Moreover, reviews of empirical studies on the stock price
behavior are made to make present study communicable in the mass literatures. The
first section of this chapter contains concepts, middle part deals with theories on
stock price behavior. The later section reviews some empirical studies.

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2.2.1 Financial market
The financial market is still in infancy in Nepal. The financial market plays and
important role in the efficient distribution and utilization of resources. So, financial
market is extremely important in a capital-poor country like Nepal. Hence, a
financial market is defined as a mechanism for trading the financial assets or claims.
“Financial market provides a form, in which suppliers of funds and demanders of
loans and investment can transact business directly” (Gitman, 1998: P.30). Two
financial markets are the money markets and the capital markets. Short term funds
of firm are raised from money market and long and middle term funds of firms are
raised from capital market. This can be presented below:

2.2.1.1 Money Market

Money market is the place where the short term lending and borrowing takes place.
It is such type of market, which is dominated by the securities having the maturity
period of less than a year. Generally, money market consists of short term
marketable securities, liquid and low risk securities such as commercial paper,
Government Treasury bills, short term bank loan etc. The money market is created
by a financial relationship between suppliers and demanders of short term funds,
which have maturities of one year or less. The money market exists because certain
individuals, businesses, government and financial institution have temporary idle
funds that they wish to place in some type of liquid asset or short term interest
earning instrument. At the same time, other individuals, business, governments and
financial institutions find themselves in supplier and demanders of short term liquid
finds (Gitman, 1988: 31))
The money market is a large, wholesale market where billions of dollars of low-risk,
unsecured, short-term, zero coupon debt instruments that are highly liquid, are
issued and actively traded everyday. Investors buy money market securities at a
discount from their face values and reap whatever income they may earn from price
appreciation that typically occurs as the maturity date of the security draws near. At
maturity, the face value is repaid to the investor owning the security on that date.
(Thapa, Bhattarai & Basnet, 2006. P.239)

2.2.1.2 Capital Market

Capital market is an organized market through which buyer and seller of long-term
capital meet and function of buying and selling takes place. It means capital markets

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are the institutions, those are engaged in mobilization of ideal saving in productive
sectors. Therefore, the market where securities are traded is known as capital
market. The capital market is a market for long-term securities having maturities
greater than one year. The key instruments used in capital market are debt, stock,
preferred stock, bonds and convertible issues. The capital market is broadly
categorized into two markets namely, primary capital market and secondary capital
market (Sharpe and Bailey, 2001: 25-27)
For the development of capital market, needs the development of both the primary
and secondary market. Primary market consists of the investment banker,
underwriter which issue the companies securities for the first time. Likewise,
secondary market consists of stock exchange, stock broker etc which are concerned
with the transaction of the securities issued in the primary market. In Nepal, there
are nine financial institution engaged in the underwriter activities, which is the main
function of the primary market. Similarly, Nepal Stock Exchange is only organized
stock exchange in Nepal, where the transaction of securities carried out. The main
instruments of capital market in Nepal are common stock, Government Bond (e.g.
National saving Certificate, Government Development Bond) Debenture and
Preferred Stock etc.

Primary market
The term “primary market” is used to denote the market for the original sale of
securities by an issuer to the public. A primary market is the place where the new
securities of government and corporation are issued and sold. The issuer received
cash, which may be invested in productive assets or retirement of debt. The issuer
may be a brand new company or that has been in business for years. The securities
offer might be a new type for the issuer or additional amount of securities used
frequently in the past. The primary markets are media through which new financial
assets are issued or generated, satisfying in the part of financial needs of both
demander and suppliers of today’s fund. (Gitman, 2000:33-34)
For issuing the securities in market, the company has to register its shares in the
SEBO to get the legal authority to the issuance of the shares and an issuer should
issue their securities through underwriter and investment banker. The institutions
that perform the role of an expert in issuing new securities are called investment
bankers. These bankers make available advice to the business firms regarding the

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nature of security, maturity, interest rate and underwrite the issue of securities.
Sometimes the business firm can make the direct sale of the securities to the buyers
without underwriting. Such direct sale is called direct placement of securities.
(Thapa, Bhattarai & Basnet, 2006. P.4). The main function of primary market is to
make the financial capital available to make new investments in building, equipment
and stock of necessary goods. (Thapa, Bhattarai & Basnet, 2006. P.20)

Secondary Market
The market where the existing and pre-developed securities are bought and sold is
called secondary market. Secondary market provides liquidity to the purchases of
the securities. High liquidity of the secondary market encourages the investors to
invest in the primary market as well. Secondary market can be regarded as the center
to convert stocks, bonds and other securities into cash immediately.
Nepal Stock Exchange (NEPSE) is the only a secondary market in Nepal. It is
noteworthy that the firm whose securities are being traded in the secondary market is
not involved in the security market transaction and thus does not receive any funds
from such transaction. Simply, one investor (seller) receives the fund from the
investor (buyer). (Thapa, Bhattarai & Basnet, 2006. P.4)
The transaction is more in secondary market than in primary market. But these
markets involve in mutually closely related way. For instance, if the price of
securities increase in secondary market, the price of security in primary market also
increase because of the investment transfer from one market to another according to
price and return.( Thapa, Bhattarai & Basnet, 2006. P.20)

2.2.2 Theory of Price Behaviour

The forces of supply and demand interact to determine a stock market price. If
demand is high and supply is low then the price of stock goes up and vice-versa.
There are essentially two schools of thought to explain the stock price behaviour.
They are:
i. Inefficient Market Theory
ii. Efficient Market Theory

2.2.2.1 Inefficient Market Theory

Conventional approach has considered that market is inefficient, which includes
technical analysis theory, “Prior to the development of the efficient market theory,

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investors were generally divided into two groups: Fundamentalists, Technicians”.
The two groups are analyzed as follows:

Technical Analysis Theory

Technical analysis is one of the important theory of price determination and
interpretation of the stock. Technical analysis is based on widely accepted premise
that securities price are determined by the supply and demand of securities. This
theory involves in the study of past volume and price data of the stock to predict
future price fluctuations. Typically, technical analysis records historical financial
data on charts. It studies various graphs and charts of past share prices to find
meaningful pattern and deduce or conclude about future price movement. By the
help of past patterns, this theory predicts future prices. In the technical analysis
theory, some charting techniques are used to predict the movements of single
security and some are used to predict the movement of a market index. Technical
analysis theory recommends for short-term speculation. Based on that
recommendation for short term speculation, it forecasts the profitable pattern. The
technical analysis theory suggests for the right time purchasing and selling. (Sharpe
and Bailey, 2001:683) Technical analyst believes that important information about
future price movements can be obtained by studying the historical price movement
of stock prices. Financial data are recorded on graph paper and the data are
scrutinized in search of repetitive patterns. Technical analysts base their buy and sell
decision on the charts they prepare. (Thapa, Bhattarai, Basnet, 2006. P.393)
“The technician believes the forces of supply and demand are reflected in patterns
of price and volume of trading. By examination of these patterns, he predicts
whether prices are moving higher or lower, and even by how much” (Fisher and
Jordan, 2000:P.510)

Fundamental Analysis
Simply, the fundamental analysis theory refers the formula and principle. According
to the technical analyst, the fundamental analysis is idealist part of analysis. So, it is
not perfect and market principle of analysis of stock price movement. Fundamental
analysis theory also claims that any point of time, an individual stock has an intrinsic
value, which is equal to the present value of the future cash flows from the security
discounted at appropriate risk, adjusted discount rate, “The value of the common

15
stock is simply the present value of all the income which the owner of the share will
receive” (Fransis, 1986: P 398)
Intrinsic value is the value of the share which is supported by assets, profitability,
financial performance, future prospects, industry scenario, economy wide factors,
etc. The idea about the intrinsic value helps in making investment decisions. It is
believed that shares are likely to command the prices around the intrinsic value,
therefore a comparison of intrinsic values and prevailing market price can help in
deciding about the scrip to be purchased or sold. If intrinsic value is higher than the
market price then the share price should be purchased and sell in vice versa
condition (Khatri, 2006:122).
“Fundamental analysis uses different models like Top-Down versus Bottom Up
forecasting, Probabilistic forecasting, econometric models, financial statement
analysis etc to estimate the value of security” (Sharpe, Alexander and Bailey, 2001,
850-853). Therefore, the fundamental analyst reaches an investment decision on the
basis of these analytical tools.

2.2.2.2 Efficient Market Theory

Efficient market theory refers the optimum price of the stock in the competition
market. Stock price is neither over-valued nor undervalued in the market like
monopoly market. This theory involves the study of random or efficient market
hypothesis. “In 1990, French mathematicians Louis Bachelier writes a scientific
paper suggesting that day-to-day security price fluctuation were random walk
theory” (Paul H. Cootner, 1962). In an efficient market investors expect to make
only normal profits and earn a normal rate of return on their investments. In such a
market any new information immediately and fully reflected in price. New
information is just that new, meaning as surprise. In a perfectly efficient market,
price changes are close to random. (Sharpe, 1999:106).
Professor Fugene Fama published an empirical study in 1965 that analyzed the stock
price movements of all the stocks that make up the DJIA. Fama investigated daily
price changes for 30 stock over a 5 year period.
Fama’s study was designed to measure the degree of randomness with which stock
prices are fluctuated. Fama thought that financial information arrived randomly and
assumed that prices responded efficiently to the new information. Fama delineated
three levels of market efficiency.

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Weak Form Market Efficiency: The weakly hypothesis stipulates that historical
price and volume data for securities contain non information which can be used to
earn a trading profit above that could be attained with a naïve buy and hold
investment strategy. Thus, hypothesis suggests that a technical analyst is well
recorded but worthless fork lore.
Semi-Strong Form Market Efficiency: Semi-strong form market efficiency
hypothesis specifies that markets are efficient enough for prices to reflect all
publicity available information. Consequently, only those insiders who have access
to valuable information could earn a profit larger than what could be earned by using
a naïve buy and hold strategy in a semi strong efficient market.
Strong Form Market Efficiency: It claims that no one can earn a profit larger than
what could be earned with a naïve buy and hold strategy by trading on short-term
security price movements. Security markets can be strong efficient of the rates of
stock price changes and independent random variables and none of the market
participants use inside information. (Thapa, Bhattarai & Basnet, 2006. P.403)

2.2.3 Common Stocks

Common stock is a security issued by a company to raise equity capital. It is one of
the major sources of long-term (permanent) capital. Funds provided by common
equity are used to finance major portion of the firm’s fixed assets such as land and
building, plant and machinery, vehicle etc. Common stock represents ownership of
the company. Common stockholders of a company are its real owners. Their
liability, however, is limited to the amount of their investment. Common stock
certificates are legal documents that evidence ownership of the holders in a
company. Common stockholders have residual claim on income and asset. Common
stock dividend is paid after payment of interest to the creditors, tax to the
government, preferred dividend to the preferred stockholders. Similarly, in the event
of liquidation, common stockholders have a residual claim on the assets of the
company after the claim of all creditors and preferred stockholders are settled in full.
Common stock does not have the maturity date. Shareholders, however, can sell
their stocks in the secondary market. Hence, the company which needs fund for
indefinite period issues shares of common stock.

17
2.2.3.1 Value of the Common Stock
Common stock has different values, which are used in different perspective. `
Par value
Par value is stated price in common stock certificates. The corporate charter
specifies the par value of a share of common stock. In Nepal, Company Act, 2063
(2006 A.D) has given flexibility to set a par value. A company can set a par value of
Rs. 50 each or any other higher amount divisible by the figure ten as provided in the
memorandum of association and articles of association.
Book value
Book value is an accounting concept. The firm’s book value of equity includes
common stock, share premium (additional paid-in capital) and retained earning. It
represents owners’ contribution to the firm, hence is known as the net worth of a
firm. Book value is simply the amount per share of common stock to be received if
all the firm’s assets are sold for their exact book value and all liabilities (including
preference stock) are paid. Book value per share is computed by dividing total book
value or total net worth by number of shares outstanding.
Total Net Worth
Book Value = Number of Shares outstanding

Liquidation value
Liquidation value is the amount that a company could realize if it sells its assets after
having terminated its business and paying all creditors. Liquidation value does not
include the value of intangible and fictitious assets since the operations of the
company are assumed to cease.
Market Value
Market value of a security (common stock) is the current or actual price at which the
stock is being traded in the market. Company’s future growth, earnings, earning
power, level of risk etc. are reflected in market price of the security
Intrinsic value
Intrinsic value of a security is theoretical value or fair value. It is based on future
cash flows, future prospects, future state of the economy and other factors that affect
the valuation of the security or asset. Intrinsic value of a security is its economic
value. In an efficient market, there is no significant difference between market value
and intrinsic of the security. Intrinsic value is calculated as the present value of the

18
expected cash flow stream discounted at the investor’s appropriate required rate of
return. (Gautam & Thapa. 2008, P.112-113)

2.2.3.2 Common Stock Valuation

Common stock is an ownership security. The common stockholders expect to be
rewarded through periodic cash dividends and an increasing or at least non declining
share value. Like current owners, prospective owners and security analysts
frequently estimate the firm’s value. They purchase the stock where they believe that
it is undervalued that its true value is greater than its market price. They sell the
stock when they feel that it is overvalued that its market price is greater than its true
value. (Gitman, L.J:P. 299)

2.3 Review of Related Studies

2.3.1 Review of Journal and Article
Articles, journal and bulletins are of great significance for thesis writing. Number of
scholars and academic researchers has written many research articles on theme
related to present study. So in order to make this study more comprehensive, some
articles, books etc related to stock price are consulted and reviewed.

Fama’s (1965) on the random walk model was one of the best definitive and
comprehensive study ever conducted. He observed the daily proportionate prices of
30 individual stocks of the Dow Jones Industrial Average Index (DJIAI) for the
period of 1957 to 1962. He employed the statistical tools such as serial correlation
and run test to draw inference about dependent of the price series. He calculated
auto-correlation coefficient for daily changes in log prices for lag from 1 to 30 and
found that the coefficient were almost close to zero in overall. The correlation
coefficient for daily changes in average was +0.03, which is near to zero. But on the
daily price changes, 11 out of 30 stocks had correlation coefficient more than twice
their compound standard errors. The coefficient ranged from smallest 0.06 to largest
0.123. However, Fama concluded, “Dependence as such a small order of magnitude
is, from a practical point of view, probable unimportant for both the statistician and
investor”. Fama also calculated serial correlation for lag from 1 to 10 for no-
overlapping differencing intervals of four, nine and sixteen days to examine the

19
possibility if price change across longer interval shows dependence. All the results
are again not significantly different from zero.

Pradhan (1994), studied the market behaviour in Nepal and concluded that large
stocks have larger PE ratios, larger ratios of the market value to book value of equity
and smaller dividends. However, PE ratios and dividend ratio are more variable for
smaller stocks where as market value to book value of equity is more variable for the
larger stocks. Larger stocks also have higher liquidity, higher leverage, lower
profitability, lower assets turnover and lower interest coverage. Smaller dividends,
lower profitability, lower assets turnover and lower interest coverage for larger stock
may be attributed to the fact that most of the larger stocks are at their initial stage of
operation. Stocks with larger market value to book value of equity have larger P/E
ratio and lower dividends. PE ratios are more variable for stocks with larger market
value to book value ratios and dividends ratios are more variable for stocks with
smaller market value to book value. Stocks with larger market value to book ratios
have lower liquidity, higher leverage, lower earnings, lower turnover and lower
interest coverage. However, liquidity and leverage are more variable for stocks with
larger market value to book value ratios while earnings, assets turnover and interest
coverage are more variable for stocks with smaller market value to book value
ratios. Stock with larger PE ratio has larger market value to book value of equity and
smaller dividends ratios. However, their ratios of market value to book value of
equity, and dividends are more variable for smaller stocks than for larger stocks.
Stocks with larger PE ratios have lower liquidity, higher leverage, lower
profitability, lower assets turnover and lower interest coverage. However, liquidity,
leverage, earnings,
turnover and interest coverage are all more variable for stocks with smaller PE ratios
Stock paying higher dividends has higher liquidity, lower leverage, higher earnings,
higher turnover and higher interest coverage.

Shrestha (2004) expressed in “A Journal of Management and Development Review”

that capital market proved to be one of the important segments of the economy since
it facilitates and provides better institutional arrangements for the borrowing and
lending of long term funds. Capital market is the general barometer that measures
the proper collection and channelization of savings for investment in productive and

20
income generating assets. The allocative-efficiency in the use funds is the basis for
measuring the performance of capital market. In this way, he tries to study the
impact of regulation on capital market in Nepal. But what matters crucial is the
effective regulation of security market. However, experience in the number of
advanced and developing countries shows that regulation of securities market
became a felt necessity as a result of manipulative practices and dishonest security
dealings. He further describes even in our country, the Get-Quick- Rich traders in
securities market turned logical idea into a noxious growth. And there is playing on
public money by public limited companies by issuing with rosy prospectus to
mislead investors in the absence of appropriate control and supervision through
strong enforcement of the regulation.
At last, he suggested that in order to make the impact of regulation meaningful and
purposeful, many improvements are required.

2.3.2 Review of Unpublished Thesis

Number of thesis relevant to this study has been reviewed for the purpose of finding
previous studies and their findings. Some of the important findings are presented
here below:
Karki (2007) has conducted research on “Dividend and Stock Price”. The study was
carried out by the data for 12 enterprises from 2000 to 2005.
The main objectives of that study were as follows:
 To test the differences between dividend per share and stock prices.
 To determine the impact of dividend policy on stock price.
 To identify whether it is possible to increase the market value of the stock
changing dividend policy or pay out ratio.
 To explain the price behaviour, the study used simultaneous equation model
as developed by Friend and Puckett.
The main findings of that study were as follows:
 The difference between dividend per share and stock prices is positive in the
sample companies.
 Dividend per share affects the share prices variedly in different sectors.
 Changing the dividend policy or dividend per share might help to increase
the market price of share.

21
  The difference between stock prices and retained earnings per share is not
prominent.
 The difference between stock prices and lagged earnings ratio is negative.
 Though there were above mentioned studies in the context of Nepal, it has
overcome necessary to find out whether their findings are still valid.

Shrestha (2006) has conducted research on “Share price Behaviour of Commercial

Bank Listed in NEPSE”. The main objectives of his research are as follows:
 To analyze the stock price movement of the NEPSE market.
 To test the random walk or weak efficient market hypothesis.
 To test whether the successive price changes are independent or dependent
with the price of historical change.
The main findings of Shrestha are as follows:
 The total numbers of actual and expected runs are statically significant for
most of the equity share, which implies that their price changes are
significantly different from random series. Result of run test also supports
the result of autocorrelation. Therefore, today’s price change is dependent on
the information of yesterday’s price.
 The mean absolute values of the autocorrelation coefficients are lower when
the lag days increase. This means, the information of past price changes have
little role to predict the future price changes for longer days.
 Because the persistence hypothesis has been supported by the result of
autocorrelation and run test, professional investors either individual or
institutional can beat the market. Therefore, to make greater profit than
“naïve buy and hold strategy”, acute fundamental or other analyses are
required which accurately predict the appearance of the new information in
the market that affects the price of shares.
 There exists a low order serial dependence, which helps in certain extent to
increase investor’s expected profit.

Subedi (2005) studied “Stock Price Behaviour in Nepal”, the main objectives of the
study were to identify the relationship between stock price and other variables.
The basis objectives of this research are as follows:
 To analyze the effect of book value to stock price in securities market.

22
  To evaluate the effect of earning to stock price in securities market and to
show the relationship effect of market variables in securities market.
 To analyze the effect of dividend to stock price in Nepalese stock market.
 To analyze the listing of new companies and volume of share traded.
 To access the effect and efficient qualitative factors in the opinion of the
employees of A grade listed companies.
From the above objectives she also concludes the following findings:
 In NEPSE, EPS, DPS & BVPS individually do not have consistent
relationship with the market price of shares, among the listed companies, the
pricing behaviur varies from one company to another.
 But EPS, DPS and BVPS jointly have significant effect in market prices of
shares. So there may be other major factor affecting the share price
significantly.
 All of the Nepalese share investors have not found adequate knowledge to
analyze the share price behaviour.
 There is difference of proper laws and policies regarding the capital market,
shareholders are feeling unsecured to invest in security market due to poor
regulatory mechanism to protect shareholders interest.

Amatya (2005) has conducted a research on “Brokerage Services and Stock Price
Movement in NEPSE”. The main areas of her research are as follows:
 To examine the brokerage services in NEPSE.
 To study the stock price movements of companies in NEPSE.
 To examine the conditions regarding to the change of stock price.
From her study she concluded that,
 Pricing behaviour of stock differs company to company. Even though DPS,
BVPS and EPS jointly have significant effect on the share price, individually
they do not have consistent relationship with MVPS. It means that there may
be other major factors influencing and determining the share price
significantly.
 The involvement of different sectors especially the broker with various
services and facilities in comparison to cost help to grow the involvement of
the number of investors and the number of shares traded.

23
  The effective brokering service helps to increase the transaction and thereby
create liquidity of stocks.

Shrestha, (2004) studied on the topic “Share prices Behaviour in Nepal” was
conducted with the major objective of securities market of Nepal, which are as
follows:
 To analyze development and the efficiency of stock market of Nepal.
 To analyze whether the sequence of price change are constant with change of
the series of random number, expected number and the independent Bin
process,
 To analyze the sensitivity of securities (specially banking, financing and
insurance sectors) and compare with market return.
 To determine the efficiency of the stock market through the theoretical
model of efficiency market hypothesis in the securities market.
The researcher examined daily closing prices of 30 stocks during the period from 13
Jan 1998 to Mid July, 2002 by means of serial correlation and runs tests found that
the successive price changes are dependent. The main findings of this study are:
 The price changes in the present and future stock market may not be
independent of the price change in the past and present respectively.
 The change of price of the present and past may be helpful to forecast future
price change. Hence, there exists the sufficient amount of opportunities for
the sophisticated investors.
 There exists no profitable trading rule to make greater profit than they would
make under the naïve-buy and hold strategy in their speculation through the
information of past price changes.
 When logs of days increase, the mean value of series correlation of
coefficient is lower, that indicates the past changes may have low power to
predict the future price change.
 The development of institute rates of stock markets are also not in
satisfactory factors and Nepalese stock market is not efficient in pricing
shares.

Baral (2003) has conducted research on “Stock Price Movement in Nepalese

securities Market”. The main objectives of his research are:

24
  To study and analyze the stock price and volume.
 To study and analyze the rate of newly listed companies and maintenance of
already listed companies in NEPSE.
 To study and analyze the investors views regarding the decisions on stock
investment.
 To study and examine the signaling factors impact on stock price with the
help of NEPSE index.
The major findings of Baral are as follows:
 Studying the annual trend analysis of Nepalese stock price market, it was
found that stock price trend is decreasing from many years as smoothly but
from one year price of stock is decreasing as rapidly.
 On analyzing the price trend of three years, NEPSE index in different months
with the help of monthly trend showed that the price trend of different
months of the year 2000 was in increasing trend, 2001 in decreasing trend
and while that of 2002 was sometimes in increasing trend and sometimes in
decreasing trend.
 Studying the sector wise monthly trend analysis for one year (Poush 2058 to
Mangsir 2059), it was found that unsystematic activities of the Nepalese
stock price market. No experts can certainly forecast about the stock price.
 Volume of stock traded in stock exchange during the stock period was found
in increasing trend but in last year it was in decreasing trend.

Dhakal, (2003) studied on “Dividend and Stock Price Behaviour” which was carried
out by the data for 16 enterprises form 1998 to 2002. This study used simultaneous
equation model as developed by Friend and Puckett (1964)
The main objectives of that study were as follows:
 To test the difference between dividend per share and share prices.
 To determine the impact of dividend policy on share prices.
 To identify whether it is possible to increase the market value of the stock
changing dividend policy or payout ratio.
The major findings of the study are as follows
 The difference between dividend per share and stock price is positive in the
sample companies.
 Dividend per share affects the share prices variedly in different sectors.

25
  Changing the dividend policy or dividend per share might help to increase
the market price of share.
 The difference between stock prices and lagged earning ratio is negative.

Aryal Mukti (1997) conducted study on “The General Behaviour of Stock Market
Price” using serial correlation analysis and runs tests on daily closing prices of 21
stocks during 13 Jan 1994 to 13 September, 1994 is conducted with the following
objectives.
 To discuss theoretically movements of stock market price changes of an
individual common stock as a whole.
 To develop the empirical probability distribution of successive price changes
of an individual common stocks markets as a whole.
 To examine whether the successive price changes of stock market are
independent of each other or not.
The main findings of the study are:
 On the basis of the run test and serial correlation, it seems that the
independent assumption of random walk model in stock market prices is
rejected by collected sample data of 21 companies, at least as a description of
price behaviour in Nepal Stock Exchange. The share price changes are
dependent on each other.
 The random walk model of security speculative price behavior has been
refuted at least in the Nepalese context, which clarifies that the knowledge of
the past becomes useful in predicting the future movements of stock market
prices.
 The securities, in the past, were incorrectly priced either over or under
valued as actual market prices of securities.
 There exists frequent persistence than reaction in the general stock market
climate because of the investor’s irrational behaviour that causes the
irrational movement of prices of stock.
 The general stock market of Nepal for the initial period appeared to be
inefficient in incorporating the possible appearance of information into the
successive prices change. Therefore, the investing publics are not aware of
the information available publicly, appropriately in adjusting with the actual
market price.

26
2.4. Research Gap
This research is not a new research in Share Price Movement of
Commercial banks of Nepal. There are many research conducted in this
topic. In other research, most researchers used serial correlations, run tests
and simultaneous equations.
In this research, different financial indicators have been used to analyze its
financial performance, which has not been done in other research. Based on
primary questionnaire, different analysis has been made. In this research five
commercial banks are taken into consideration. The recommendation is
given regarding causes of fluctuation of stock price and for the betterment of
the listed commercial banks in NEPSE.

27
 CHAPTER III
RESEARCH METHODOLOGY

3.1 Background
This chapter provides the methods used to achieve the study goal stated earlier. It
includes research design, nature and sources of data, selection of enterprises, data
proceeding, and methods of analysis and result interpretation procedures. Moreover,
this chapter includes the definition of terms used in analysis part.
Research methodology is a way to systematically solve the research problem. It
refers to the various sequential steps that are to be adopted by a researcher during the
course of studying the problem with certain objectives. This chapter refers to the
overall research method from the theoretical aspects to the collection and analysis of
data. This research tries to perform a well- designed quantitative and qualitative
research in a very clear and direct way using both financial and statistical tools.
Detail research methods are described in the following techniques.

3.2 Research design

Research design is plan, structure and strategy of investigating conceived so as to
obtain answer of research question and to control variance. The plan is the overall
scheme or program of the research,” (Kerlinger, 1986:275),
In order to make any type of research a well- set research design is necessary to
fulfill the objectives of the study. Generally, research design means definite
procedure and techniques which guides in study and provide ways for research
viability. It is arrangements for collection and analysis of data. To achieve the
objective of this study, descriptive and analytical research design has been used.
Some financial and statistical tools have been applied to examine facts and
descriptive techniques have been adopted to determine the relation between
corporate performance and stock price of listed companies in the NEPSE. The study
is over finally as planned in the research design.

3.3 Population and Samples of Data

The term population of data denotes for the commercial banks listed in NEPSE (as
per 2008 A.D) and Sample data are the data from organizations selected from

28
population in few numbers. First, research has considered only common stock of
banks as sample and second, those securities which were listed NEPSE before 2000
A.D, are selected. Third, the banks who’s MPS are higher, are selected for the
research. The sample data of five banks namely NABIL, SBI, BOK, EBL, HBL
represents 19% out of 26 commercial banks.

3.4 Nature and Sources of Data

For the purpose of analysis in this research, both the primary and the secondary data
are used. The facts and figures provided by the banks are taken into considerations.
However some data have also been collected from primary sources. The proforma of
interview schedule has been presented in Appendix 8.
The secondary data are collected from the following sources:
1. Annual reports published by the banks
2. Statistical reports of the NRB
3. Related books, magazines, bulletins, journals and newspaper
4. Related website.
5. Publications of Ministry of Finance
6. Security Exchange Board of Nepal

3.5 Data Collection Techniques

Data were not available in readymade format. Data manipulated as per research
requirements. First, needed data assessed. Second, data are collected and only
essential are selected, classified and such a way that they represent qualitative and
quantitative glimpse. Only manipulated data used in this research. To manipulate
data Computer Application program MS- Office, Professional Edition, 2003 are
used. Techniques of data collection are as follows:
 Library Research
 Internet, Homepages and Related Links study
 Review and reports of concerns
For the collection of primary data, structured questionnaires are issued to:
 Bank Personnel
 Public Investors/ Shareholders
 Potential Investors

29
3.6 Data Analysis Tools
The primary and secondary data collected from various sources leads to the logical
conclusion, only if the appropriate tools and techniques are adapted to analyze such
data. The collected data has been no meaning, if such data are not analyzed. To
analyze the data in this research, the researcher has used some statistical and
financial tools, which are explained here.

3.6.1 Financial Tools

Except the statistical tools, some financial tools are also used in this research work.
”Financial analysis is the process of identifying the financial strength and weakness
of the firm by properly establishing relationship between the item of the balance
sheet and profit and loss account” (Pandey, LM, financial Management, edition,
p.108)
The major financial tools used in this research are:

3.6.1.1 Earning Per Share (EPS):

It is earnings made by single units of a share and earning power of a company. It
shows the profitability of the firm on a per share basis. It is the share of a stock on
the earning of the company. It is calculated by dividing total earning available to the
shareholders by no. of share outstanding. The earning available to the shareholders
is calculated by net profit after taxes and preference dividends.
Total Earning of Company
EPS = No.of Shares Outstanding

3.6.1.2 Dividend per Share (DPS):

The DPS is the amount paid on dividend to the holder of one share of the stock.
Only financial strong companies distribute dividends. It attracts to investors to invest
in shares of stock and maintain goodwill. A part of profit belonging to equity share
holders are retained in the business and balance is paid to them as dividend. It is
calculated as following.
Total Dividend paid
DPS = No.of Shares Outstanding

Total Dividend = Cash Dividend + Stock Dividend

30
3.6.1.3 Market Share price per Share (MPS)
MPS is the market value per share of the stock on the floor of stock exchange at a
specified date. It is the most important attribute of the stock market. In other words,
it is a trading price of a stock in the market. MPS reflects the functional status of the
concerned firm. MPS will be high if the financial status of the firm is sound and vice
versa. It is calculated as:
Total Market Capitalization
MPS = No.of Shares Outstanding

3.6.1.4 Book Value per Share (BVPS)

The sum of the cumulative retained earnings and other entries (such as common
stocks and contributed in excess of par value) under stockholder’s equity is the book
value of the equity. It represents the real net worth per share. It is simply the ratio of
net worth (share capital plus retained earnings i.e. ownership capital) and the
number of existing shares. It is calculated as:
Net Worth
BVPS = No.of Shares Outstanding

3.6.1.5 Holding Period Returns

A key measure of investors’ success is the rate at which their funds have grown
during the investment period. The total holding period rate (HPR) of a share of
stocks depends on the increase (or decrease) in the price of the share over the
investment period as well as on any dividend income the share has provided. The
rate of return is defined as rupees earned over the investment period per rupee
invested. It is represented by R and expressed in terms of percentage basis. It is
calculated as
Ending Price - Beginning Price + Cash Dividend
HPR= Beginning Price
Symbolically,
Pt + Pt+1+ Dt
HPR= Pt+1 = Capital Gain + Dividend Yield

Where, Pt = Price of a stock at time t

Pt+1= Price of a stock at time t +1

31
 Dt= Dividend per share at time t

3.6.1.6 Risk and Return Analysis of Market

Return on Market
Annual return on market is the average return of market based on the index of
market. Rm denotes it. Under this study, NEPSE index will be used. It is a value

weighted index and companies of all the stocks listed in NEPSE. The NEPSE index
is used for the study.
Ending NEPSE Index-Beginning NEPSE Index
Annual Market Return (Rm) = Beginning NEPSE Index

__ Rm
Annual Market Return ( R m) = N

Where,
Rm= Summation of annual market return

N= Number of observation

Risk of Market Returns

Risk of market return is also measured by the standard deviation of the returns of
market. The standard deviation of market returns is computed as:
__ 2
(Rm- R m)
Standard Deviation (σm) = N-1

3.6.1. 7 Market Sensitivity Analysis

Covariance
The covariance measures how two variables co-vary. It is a measure of the absolute
association between two variables. Here, the returns of individual stocks and the
market return co-vary are measured by covariance between the return of individual
stocks and market return. It is computed as:
__ __
[(Rj- R j) (Rm- R m)]
Cov Rj,Rm= N
If two variables are independent, their covariance is zero.

32
Beta Coefficient
The beta coefficient is an index of systematic risk. It may be used for ranking the
systematic risk of different assets. It can be calculated by using following formula
COV(Rm Rj)
βj = σ2 m

COV (Rm Rj) is the covariance between the return of an individual asset and the

returns of the market and σ2m is the variance of the market returns. Stocks can be

classified as aggressive or defensive or average depending on the value of beta

coefficients.
Beta coefficient Stocks Degree of risk
(β) classification
Exactly 1 Average stock Equally risky as the
market
Greater than 1 Aggressive stock More risky than the
market
Less than 1 defensive stock Less risky than the
market
Beta coefficient can also be related with the CAPM equation to determine the
required rate of return of a given stock. The required rate of return (Ki) is the risk
free rate of return (Rf ) plus a risk premium (RPM={Rm- Rf}) based on the beta of
the stock (βj)

Ki = Rf + β ( Rm- Rf) or Ki = Rf + RPMβj

3.6.2 Statistical tools

Statistical tools are the mathematical techniques used to facilitate the
analysis and interpretation of numerical data. “Statistical Analysis is one particular
language, which describe the data and makes possible to talk about the relation and
the difference of the variables.”
3.6.2.1 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

33
whole group. The value of the AM is obtained by adding together all the items and b
dividing this total by the number of items.
Mathematically,
Arithmetic Mean (AM) is given by,
__ x
X= n

Where,
__
X = Arithmetic Mean
n = Number of observations
x = Sum of all the values of variable X

3.6.2.2 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. The smaller the SD means the lower
the riskiness of the stock and vice versa. Smaller SD shows the good performance of
the company and vice versa.
Mathematically,
__ 2
(X- X )
σ= N-1

3.6.2.3 Coefficient of Variation (CV)

Coefficient of Variation (CV) is a relative measure. To compare the variability
between two or more series, CV is more appropriate statistical tool.
Mathematically,
σ
CV= __
X
The result shown by the SD & mean cannot provide correct decision. So, to have the
correct decision, CV is calculated. It is because CV is used to compare when both
SD & the mean values of the stock get differ. Two variables can be compared by the

34
help of C.V. Less the C.V. more will be the uniformity, consistency etc. and more
the C.V. less will be the uniformity, consistency etc.

3.6.2.4 Correlation Analysis

Correlation is defined as the relationship between dependent variable and
independent variable. If the two or more variables are so related that the change in
the value of dependent variable then they are said to have correlation. Correlation
analysis is defined as the statistical technique which measures the degree and
direction of relationship between the variables.
The degree of relationship between two variables is known as simple
correlation (Sharma and Chaudhari, 2003:405). The most widely used in practice for
calculating correlation coefficient between two variables is “Karl Pearson’s
correlation coefficient”. The correlation coefficient between two variables X and
Y, usually denoted by r(X,Y) or rxy or simply r, is a numerical measure of linear
relationship between them and is defined as
R12 = correlation coefficient between X1 and X2
nx1x2  (x1)( x2)
Correlation Coefficient (r) =
nx12 (x1)2 nx22  (x2)2

The value of r lies between -1 and +1. Symbolically, -1≤ r ≤ +1

The correlation coefficient is symmetric in two variables, i.e. r xy ≠ ryx (It can be
verified by exchanging X and Y in the formula). It is a pure number independent of
the unit of measurement.
Interpretation of correlation coefficient
i. When r = +1, there is perfect positive correlation
ii. When r = -1, there is perfect negative correlation
iii. When r = 0, there is no correlation
iv. When r lies between 0.7 and 0.999 (-0.7 to -0.999) there is a high degree of
positive (or negative) correlation.
v. When r lies between 0.5 and 0.699 (-0.5 to -0.699) there is a moderate degree of
positive (or negative) correlation.
vi. When r is less than 0.5, there is low degree of correlation.

35
3.6.2.5 Coefficient of Determination
The coefficient of determination is the way to measure the contribution of
independent variables in predicting the dependent variables. It is more appropriate
while verifying the results than the correlation coefficient and computed by square
of the correlation coefficient as mentioned below.
Coefficient of Determination (r2) = r ×r
It is the proportion of total variation in y that is explained by the linear relation
between x & y. The value of r2 lies between 0 & 1. Symbolically, 0≤ r2 ≤ 1
The value of r2 close to zero implies the absence of any significant correlation
between x & y, r close to 1 implies a strong correlation between x & y.

3.6.2.6 Probable Error (P.E)

If r is the correlation coefficient in a sample of n pairs of observations, then its
standard error (S.E) is given by:
1 - r2
S.E (r) =
n
Probable error (P.E) of correlation coefficient is given by:
P.E(r) = 0.6745 × S.E (r)
1 - r2
=0.6745
n
Probable error is an old measure for testing the reliability of an observed correlation
coefficient. Probable error of correlation coefficient denoted by P.E is the measure
of testing the reliability of the calculated value of r.
i) If r < P.E it is insignificant, so perhaps there is no evidence of correlation
ii) If r > P.E it is significant

3.6.2.7 Regression Analysis

Regression is the statistical tool, with the help of which we can predict the unknown
value of one variable from known value of any other variable. Assuming that the
two variables are closely related, we can estimate the value of one variable from the
value of another. The variable, whose value is given, is called independent variable
and the variable whose value is to be predicted is called dependent variable. It is a
statistical tool for determining relationship between the variables by the
establishment of an approximate functional relationship between them. It is used to

36
determine that whether the dependent variable is influenced by the given
independent variable or not.
Under this study, simple regression analysis is being used. It describes the average
relationship between two variables. In this study, the following simple regression
has been analyzed.
MPS = a + bEPS………….. (i)
MPS = a + bDPS…………. (ii)
MPS = a + bBVPS………… (iii)

3.6.2.8 Graphs:
Graph help to show the general trend of the ratios in respect to the time. A
very common way of presenting data for two variables, which have a relationship, is
in a figure or chart graph that works best when the data is continuous. A figure is
used to show the changes of dependent variables in relation to the change of
independent variables. It is common practice to place the independent variable along
X-axis and dependent variable on Y-axis. For the calculation, the researcher has
selected the financial ratios as dependent variable and the time in years as
independent variables.

3.6.2.9 Research Questions

A questionnaire is a list of queries designed to elicit the required information in the
form of short answers filled into the blank spaces or through multiple choice
questions. Research questions are being used to collect primary data.

37
 CHAPTER IV
DATA PRESENTATION AND ANALYSIS

4.1 Introduction
This chapter, data analysis and interpretation is major part of the study. In
this part, the analytical exploration and manipulation of data has been attempted
within the frame of the research methodology and then analyzed data are presented
with appropriate form like tables, graphs and diagrams. In this chapter, relevant and
available data of five listed companies, which had been taken as sample from the
categorized sectors by NEPSE and an attempt has been made to the study.
This chapter intends to analyze collected secondary data and also primary datas and
interpret that research. In this chapter efforts have been made to present and analyze
the collected data. The source of data was company brochure, annual reports,
NEPSE website, SEBON website and library. These collected data are presented in
systematic formats and analyzed using different appropriate tools and techniques.
Data collected from various sources were classified and tabulated as requirement of
the study and in accordance to the nature of collected data.

4.2 Analysis of Financial Performance of the Company

The performances of individual Company that are listed in the stock exchange have
direct impact on capital market. A company having a good performance has highest
market price, higher demand of stock, lower risk and lower cost of capital.
Various indicators are used to analyze the company’s performance. The used
indicators are EPS, MPS, DPS, and BVPS.

4.2.1 Earning Per Share

Earnings Per share refer the rupee amount earned per share of common stock
outstanding. The higher earning indicates the better achievement of the profitability
of the banks by mobilizing their funds and vice versa. The profitability of a firm
from the point of view of the ordinary share holders is the EPS. It measures the
profit available to the equity holders on a per share basis i.e. the amount that they
can get on every share held. The earning per share of the banks under the study is
tabulated as follows:

38
 Table no. 4.1
Earning Per Share of Concern Banks
Year NABIL BOK HBL EBL SBI
2004/05 105.49 30.10 47.91 54.22 13.29
2005/06 129.21 43.67 59.24 62.78 18.27
2006/07 137.08 43.50 60.66 78.42 39.35
2007/08 108.31 59.94 62.74 91.82 28.33
2008/09 106.76 54.68 61.90 99.99 36.18
Mean 117.37 46.38 58.49 77.45 27.08
SD 13.15 10.33 5.42 17.15 10.03
CV 0.1120 0.2227 0.0927 0.2214 0.3703
Source: Annual Reports of SEBON

The above table shows the EPS of five sampled banks over the five years period.
NABIL has the mean EPS of Rs. 117.37. It is observed that EPS was below the
average in the initial study period. However, its performance improved over the
study period except in 2007/08, in its EPS is decrease. It shows that the performance
of NABIL is not satisfactory. BOK has the average EPS of Rs. 46.38, which is
higher than EPS of the first 3 year. However, in last 2 year, the EPS has get
increased. It shows that BOK performance is satisfactory. Likewise, in case of HBL,
its average EPS is Rs. 58.49. Except in year 2004/05, its EPS is above the average. It
shows that its performance is improving over the study period. Likewise, EBL has
average of Rs. 77.45. EPS is below the average in first 2 year and is in increasing
trend till 2008/09. EBL has better performance as compared to other banks. Finally,
SBI has average mean of Rs. 27.08. Its EPS is below the average in 2004/05 &
2005/06. Its EPS showed a increasing trend in last 3 year.
The CV of EPS in SBI is the highest, which means that SBI’s common stocks are
riskier as compared to other banks. The CV of HBL is lower as compared with
others banks hence it is less risky among all.
Thus it could be concluded that HBL has better performance as compared to other
banks, in regards of EPS.

39
 Fig no. 4.1
Earning Per Share of Concern Banks
NABIL BOK HBL EBL SBI
160

140
120
100

80
60
40
20

0
2004/05 2005/06 2006/07 2007/08 2008/09

The above figure shows the Earning per share of NABIL, BOK, HBL, EBL & SBI
of five years period. EPS of NABIL seems to be highest, followed by EBL, HBL,
BOK & SBI with regards to average EPS. The higher level of EPS shows the
company’s good performance. Increase in performance means increase net profit.
The higher level of EPS increases the market price of stock. The share price of the
company is generally dependent on indicators like situation of the company, Earning
per share and Price Earnings Ratio.
Thus, for the good performance and growth, sampled banks should increase their
profit amount. One of the measures to increase profit amount can be increment in
deposit collection.

4.2.2 Dividend per Share

The percentage of earning the firm pays in cash to its shareholders is known as
dividend. Nothing is more important than dividends to stockholders. They buy
shares of firm with the hope of sharing profit earned by firms. More profits mean
more dividends coming in.

40
 Table No. 4.2
Dividend per Share of Concern Banks
Year NABIL BOK HBL EBL SBI
2004/05 70.00 15.00 11.58 0.00 0.00
2005/06 85.00 18.00 30.00 25.00 5.00
2006/07 100.00 20.00 15.00 10.00 12.59
2007/08 60.00 2.11 25.00 20.00 0.00
2008/09 35.00 7.37 12.00 30.00 2.11
Mean 70.00 12.50 18.72 17.00 3.94
SD 0.22 6.74 7.44 10.77 4.70
CV 0.3143 0.5394 0.3975 0.6335 1.1930
Source: Annual Reports of SEBON
It is observed that DPS of NABIL in initial period is Rs. 70, which is equals to its
average. It increases its EPS up to Rs. 100. But, in year 2008/09, decreases to Rs. 35,
which is equal to half of its average. Its performance was good up to 2006/07, but
currently, its performance is not so satisfactory. BOK has average DPS of Rs. 12.50.
In the first 3 year, it has paid handsome DPS, but in last 2 year, its DPS is not so
good. Thus, BOK is slightly deteriorating its performance than before year.
Similarly, in case of HBL, it is observed that its DPS is in fluctuation stage. It is
observed that DPS was below the average Rs. 18.72 in the initial study period. From
the 2nd year, there occurred fluctuation in its DPS. In case of EBL, its average DPS
is Rs. 17. It is observed that EBL hasn’t paid any dividend in the initial period due to
lower profit earning. However, in the 2nd year, its DPS rate became higher than its
average. Then, again it get increased in 2007/08 & 2008/9 after decreasing below the
average in 2006/07. It is observed that, the average DPS of SBI is Rs. 3.94 which is
lower than other sampled banks. It hasn’t paid any dividend in 2004/05 & 2007/08.
However, its performance over the study period in 2005/06& 2006/07 had increased.
But again, it is obliged to decrease its performance level due to lower DPS.
The CV of DPS of SBI is the highest and NABIL has the lowest. The CV of SBI is
most risky as compared to other sampled banks. The least CV of NABIL indicates
that NABIL has the highest consistency in paying dividend.
From the above analysis, it could be concluded that NABIL has better performance
among the sampled banks.

41
 Fig no. 4.2
Dividend per Share of Concern Banks
NABIL BOK HBL EBL SBI
120

100

80

60

40

20

0
2004/05 2005/06 2006/07 2007/08 2008/09

The above figure shows the DPS of sampled banks. With regards to average DPS,
NABIL bank seems to be market leader in this segment too. Eventually, it is
followed by HBL, EBL, BOK & SBI. Most companies pay out its earnings as
dividend rather than to retain them for firm’s growth. Dividends are periodic cash
payment by the bank to its shareholders. Most of the shareholders invest their money
in firm in return to have periodic dividend. Higher the dividend means higher the
immediate cash flows to investor which is good.
It is believed that the declaration of dividend has positive impact on price of share.
In Nepalese context, only the banking sector is regular on paying dividend. This may
be one of the reasons for such high prices of banking sector in stock market.

4.2.3 Market price Per Share

The market price of any asset, indeed, depends on the future earning power of the
assets. Once the shares issued in the primary market are listed in the stock exchange,
investors are able to buy and sell the shares among themselves with the help of
brokerage firm. The prices of shares are determined by demand and supply
preferences. The average market price per share of the banks under study is
presented in table as follows:

42
 Table No. 4.3
Market Price per Share of Concerned Banks
Year NABIL BOK HBL EBL SBI
2004/05 1505.00 430.00 920.00 870.00 335.00
2005/06 2240.00 850.00 1100.00 1379.00 612.00
2006/07 5050.00 1375.00 1740.00 2430.00 1176.00
2007/08 5275.00 2350.00 1980.00 3132.00 1511.00
2008/09 4899.00 1825.00 1760.00 2455.00 1900.00
Mean 3793.00 1366.00 1500.00 2053.20 1106.80
SD 1590.37 681.38 412.79 815.07 572.33
CV 0.4192 0.4988 0.2752 0.3970 0.5171
Source: Annual Reports of SEBON

From the above table, it is observed that, the MPS of entire bank are below the
average of their respective MPS of the study period in 1 st 2 year. However, in the
last 3 year, their MPS are higher than their average MPS. It indicates that banks are
improving their performance in recent years.
Thus, the above analysis shows that the average closing MPS and standard deviation
of NABIL is the highest and that of SBI is the lowest too. CV of market price in SBI
is higher among the sampled bank which indicates that there is high risk involved in
market price of share for the investors and shareholders of this bank. The CV of
MPS in HBL is low which indicates that there is less risk involved in market price of
share and hence, the investors and share holders are less risky of this bank. There is
less risk in HBL due to less fluctuation in dividend payment over the five years.
From the above analysis, it is observed that HBL has better performance among the
sampled banks.

43
 Fig no. 4.3
Market Price per Share of Concern Banks
NABIL BOK HBL EBL SBI
6000

5000

4000

3000

2000

1000

0
2004/05 2005/06 2006/07 2007/08 2008/09

The above figure depicts the market price per share of concerned banks.
Most of the investors take the decision to invest in share market analyzing its MPS.
High MPS means high investment in the stock of the concerned banks. Investors
look over the market price and then only take buy/sell decision on it. Generally, a
rise in dividend payment is viewed as a positive signal, conveying positive
information about a firm’s future earning prospects resulting in an increase in
market price. Conversely a reduction in dividend payment is viewed as a negative
signal about future earning prospects, resulting in a decrease in share price.

4.2.4 Book value Per Share

The firm’s book value of equity includes common stock, share premium and
retained earning. It represents owner’s contribution to the firm, hence is known as
the net worth of a firm. Book value is simply the amount per share of common stock
to be received if all of the firm’s assets are sold for their exact book value and all
liabilities are paid.

44
 Table No. 4.4
Book Value per Share of Concerned Banks
Year NABIL BOK HBL EBL SBI
2004/05 337.00 213.60 239.59 219.87 159.54
2005/06 381.00 230.67 228.72 217.64 151.78
2006/07 418.00 164.68 264.74 280.82 178.04
2007/08 354.00 222.51 247.95 321.77 160.57
2008/09 324.00 206.25 256.52 313.64 194.68
Mean 362.80 207.54 247.50 270.75 168.92
SD 33.55 22.95 12.60 44.02 15.48
CV 0.0925 0.1106 0.0510 0.1648 0.0916
Source: Annual Reports of SEBON

The above table shows the BVPS of five sampled banks over the five years period.
NABIL has the average BVPS of Rs. 362.8. It is observed that BVPS was below the
average in the initial study period. However, in year, 2005/06 & 2006/07, BVPS has
get increased. Again in last year, it get decreased. Similarly, the average BVPS of
BOK is Rs. 207.54.
It is improving its performance over the study period, except in year, 2006/07. The
value get decrease in 3rd year, it again get increase in 2007/08 & slightly get
decrease in last year. In HBL & EBL, its BVPS was below than the average in 1st
two year, and is improving its performance over the study period. Finally, SBI has
average mean of Rs. 168.92. Its BVPS is below the average in 2004/05 & 2005/06.
Its BVPS showed increasing trend in last 3 year, though slightly decreases in
2007/08. From the above calculation and data, it is observed that the standard
deviation of EBL is the highest whereas HBL has the lowest SD. With regards to
C.V., EBL has the highest and HBL has the lowest CV of BVPS respectively. The
CV of EBL shows that there is high fluctuation in BVPS and CV of HBL shows
lower fluctuation among the sampled banks.
From the above analysis, it could be concluded that HBL has better performance
among the sampled banks.

45
 Fig no. 4.4
Book Value per Share of Concerned Banks
NABIL BOK HBL EBL SBI
450
400
350
300
250
200
150
100
50
0
2004/05 2005/06 2006/07 2007/08 2008/09

The above figure shows the book value per share of five sampled banks over the five
year’s period. With regards to average BVPS, NABIL bank seems to be market
leader & SBI found to be weakest one. The BVPS of the banks also leads in
increment of share price in stock market.

4.3 Relationship between EPS, DPS & BVPS to MPS

To analyze the relationship of EPS, DPS and BVPS to MPS, it is assumed that the
market price of share is influenced with the changes in EPS, DPS and BVPS. So,
MPS is the dependent variable, whereas EPS, DPS and BVPS are independent
variables. Here in this section, relationship of EPS, DPS and BVPS with MPS is
determined separately to each of the sampled listed companies. The correlation
analysis is performed to determine the relationship of EPS, DPS and BVPS with
MPS. To determine the effect of EPS, DPS and BVPS on MPS, simple correlation as
well as their coefficient of determination are calculated. To determine the magnitude
of the effects of the independent variables to the dependent variable, simple
regression analysis is made.

46
4.3.1 Correlation & Regression Analysis of NABIL Bank
Table 4.5 shows the relationship (correlation) of EPS, DPS & BVPS to MPS of
NABIL Bank along with the significance of such relationship.

Table No. 4.5

Relationship of EPS, DPS and BVPS with MPS of NABIL
Coefficient of Significant/
Variables Relationship r2 P.E.
correlation (r) Insignificant
MPS & BVPS 0.16 Positive 0.03 0.29 Insignificant
MPS & EPS 0.08 Positive 0.01 0.30 Insignificant
MPS & DPS -0.22 Negative 0.05 0.29 Insignificant
Source: Appendix2
In the above table, we can see the relationship of EPS, DPS, BVPS with MPS of
NABIL. The simple correlation coefficient shows the relationship between one
dependent variable and other two independent variables. The correlation between
MPS & BVPS is 0.16. It shows that MPS has low degree of positive correlation with
BVPS. It indicates that when BVPS increases, MPS also increases & vice versa. The
coefficient of determination is 0.03, which indicates that nearly 3% of the total
change in MPS is due to the effect of BVPS and rest 97% change in MPS is due to
other factors.
The correlation between MPS & DPS is -0.22. It shows that MPS has low degree of
negative correlation with DPS. It indicates that when DPS increases, MPS decreases
& vice versa. The coefficient of determination is 0.05, which indicates that nearly
4.84% of the total change in MPS is due to the effect of DPS and rest 95% change in
MPS is due to other factors.
The correlation between MPS & EPS is 0.08. It shows that MPS has low degree of
positive correlation with EPS. It indicates that when EPS increases, MPS also
increases & vice versa. The coefficient of determination is 0.01, which indicates that
nearly 1% of the total change in MPS is due to the effect of EPS and rest 99%
change in MPS is due to other factors.
The significance of relationship between the variables is measured by calculating
P.E. of coefficient from the above table. The P.E. of coefficient of variables, EPS,

47
DPS & BVPS with MPS is insignificant, as coefficient of correlation(r) is smaller
than P.E.
The linear relationship of EPS, DPS, BVPS and MPS of NABIL is presented in the
figure 4.5

Fig no. 4.5

Relationship of EPS, DPS, BVPS and MPS of NABIL

MPS EPS DPS BPS

5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2004/05 2005/06 2006/07 2007/08 2008/09

From the simple regression analysis, the regression equation is found (MPS) being
dependent variable as:
MPS on EPS
MPS = 2651.90 + 9.73EPS
The regression constant 2651.90 implies that when EPS is zero, MPS is 2651.90.
The constant for EPS 9.73 implies that when EPS increases by Rs. 1, MPS increases
by Rs. 9.73 and vice versa. The simple correlation coefficient is 0.08.
MPS on BVPS
MPS = 945.82 + 7.85BVPS
The regression constant 945.82 implies that when BVPS is zero, MPS is 945.82. The
constant for BVPS 7.85 implies that when BVPS increases by Rs. 1, MPS increases
by Rs. 7.85 and vice versa. The simple correlation coefficient is 0.16.
MPS on DPS
MPS = 4911- 15.96 DPS

48
The regression constant 4911 implies that when DPS is zero, MPS is 4911. The
constant for DPS -15.96 implies that when DPS increases by Rs. 1, MPS decreases
by Rs. 15.96 and vice versa. The simple correlation coefficient is -0.22.

4.3.2 Correlation & Regression Analysis of BOK

Table 4.6 shows the relationship (correlation) of EPS, DPS & BVPS to MPS of
BOK along with the significance of such relationship.
Table No. 4.6
Relationship of EPS, DPS and BVPS with MPS of BOK
Coefficient of Significant/
Variables Relationship r2 P.E.
correlation (r) Insignificant
MPS & BVPS -0.05 Negative 0.00 0.30 Insignificant
MPS & EPS 0.96 Positive 0.92 0.02 significant
MPS & DPS -0.77 Negative 0.59 0.12 Insignificant
Source: Appendix 1
The simple correlation coefficient shows the relationship between one dependent
variable and other two independent variables. The correlation between MPS &
BVPS is -0.05. It shows that MPS has low degree of negative correlation with
BVPS. It indicates that when BVPS increases, MPS get decreases & vice versa. The
coefficient of determination shows that 0.00% of the change in MPS is elaborated by
BVPS and rest 100% change in MPS is due to other factors. It means BVPS of BOK
has no any affect upon the MPS of this bank. The correlation between MPS & DPS
is -0.77. It shows that MPS has high degree of negative correlation with DPS. It
indicates that when DPS increases, MPS gets decrease & vice versa. The coefficient
of determination is 0.59, which indicates that 59% of the total change in MPS is due
to the effect of DPS and rest 41% change in MPS is due to other factors. The
correlation between MPS & EPS is 0.96. It shows that MPS has high degree of
positive correlation with EPS. It indicates that when EPS increases, MPS also
increases & vice versa. The coefficient of determination is 0.92, which indicates that
92 % of the total change in MPS is due to the effect of EPS and rest 8% change in
MPS is due to other factors.

49
The significance of relationship between the variables is measured by calculating
P.E. of coefficient from the above table. We can conclude the relationship between
MPS & EPS of BOK is significant, since the coefficient of correlation (r) is greater
than 6P.E. But in case of the relationship of BVPS & DPS with MPS, it is
insignificant, as coefficient of correlation is smaller than P.E.
The linear relationship of EPS, DPS, BVPS and MPS of BOK is presented in the
figure No 4.6
Fig. No. 4.6
Relationship of EPS, DPS, BVPS and MPS of BOK

MVPS EPS DPS BVPS

2500

2000

1500

1000

500

0
2004/05 2005/06 2006/07 2007/08 2008/09

From the simple regression analysis, the regression equation is found (MPS) being
dependent variable as:
MPS on EPS
MPS = -1569.26 + 63.29EPS
The regression constant -1569.26 implies that when EPS is zero, MPS is -1569.26.
The constant for EPS 63.29 implies that when EPS increases by Rs. 1, MPS
increases by Rs. 63.29 and vice versa. The simple correlation coefficient is 0.96.
MPS on BVPS
MPS = 1669.01 -1.46BVPS
The regression 1669.01 constant implies that when BVPS is zero, MPS is 1669.01.
The constant for BVPS -1.46 implies that when BVPS increases by Rs. 1, MPS
decreases by Rs. 1.46 and vice versa. The simple correlation coefficient is 0.75.
MPS on DPS

50
MPS = 2339.69- 77.92DPS
The regression constant 2339.69 implies that when DPS is zero, MPS is 2339.69.
The constant for DPS - 77.92 implies that when DPS increases by Rs. 1, MPS
decreases by Rs. 77.92 and vice versa. The simple correlation coefficient is -0.49.

4.3.3 Correlation & Regression Analysis of EBL

Table 4.7 shows the relationship (correlation) of EPS, DPS & BVPS to MPS of EBL
along with the significance of such relationship.
Table No 4.7
Relationship of EPS, DPS and BVPS with MPS of EBL
Coefficient of Significant/
Variables Relationship r2 P.E.
correlation (r) Insignificant
MPS & BVPS 0.95 Positive 0.90 0.03 significant
MPS & EPS 0.89 Positive 0.79 0.06 significant
MPS & DPS 0.47 Positive 0.22 0.24 Insignificant
Source: Appendix 4
The simple correlation coefficient shows the relationship between one dependent
variable and other two independent variables. The correlation between MPS &
BVPS is 0.95. It shows that MPS has high degree of positive correlation with BVPS.
It indicates that when BVPS increases, MPS also increases & vice versa. The
coefficient of determination is 0.90, which indicates that 90% of the total change in
MPS is due to the effect of BVPS and rest 10% change in MPS is due to other
factors.
The correlation between MPS & EPS is 0.89. It shows that MPS has high degree of
positive correlation with EPS. It indicates that when EPS increases, MPS also
increases & vice versa. The coefficient of determination is 0.79, which indicates that
79% of the total change in MPS is due to the effect of EPS and rest 21% change in
MPS is due to other factors.
The correlation between MPS & DPS is 0.47. It shows that MPS has high degree of
positive correlation with DPS. It indicates that when DPS increases, MPS also
increases & vice versa. It shows that MPS has low degree of positive correlation
with DPS. The coefficient of determination shows that 0.22% of the change in MPS
is elaborated by DPS and rest 78% change in MPS is due to other factors.

51
The significance of relationship between the variables is measured by calculating
P.E. of coefficient from the above table. The relationship of EPS & BVPS with MPS
is significant, as r is greater than 6P.E. But in case of relationship between MPS &
EPS, the relationship is insignificant, though r is greater than P.E. but still lesser
than 6P.E.
The linear relationship of EPS, DPS, BVPS and MPS of EBL is presented in the
figure No 4.7
Fig No. 4.7
Relationship of EPS, DPS, BVPS and MPS of EBL

MVPS EPS DPS BVPS

3000

2500

2000

1500

1000

500

0
2004/05 2005/06 2006/07 2007/08 2008/09

From the simple regression analysis, the regression equation is found (MPS) being
dependent variable as:
MPS on EPS
MPS = -1228.19 + 42.37EPS
The regression constant -1228.19 implies that when EPS is zero, MPS is -1228.19.
The constant for EPS 42.37 implies that when EPS increases by Rs. 1, MPS
increases by Rs. 42.37 and vice versa. The simple correlation coefficient is 0.89.
MPS on BVPS
MPS = -2628.03 +17.29BVPS
The regression constant -2628.03 implies that when BVPS is zero, MPS is -2628.03.
The constant for BVPS 17.29 implies that when BVPS increases by Rs. 1, MPS
increases by Rs. 17.29 and vice versa. The simple correlation coefficient is 0.95.
MPS on DPS

52
MPS = 1451.06+35.42DPS
The regression constant 1451.06 implies that when DPS is zero, MPS is 1451.06.
The constant for DPS 35.42 implies that when DPS increases by Rs. 1, MPS
increases by Rs. 35.42 and vice versa. The simple correlation coefficient is 0.47.

4.3.4 Correlation & Regression Analysis of HBL

Table 4.8 shows the relationship (correlation) of EPS, DPS & BVPS to MPS of HBL
along with the significance of such relationship.
Table No. 4.8
Relationship of EPS, DPS and BVPS with MPS of HBL
Coefficient of Significant/
Variables Relationship r2 P.E.
correlation (r) Insignificant
MPS & BVPS 0.72 Positive 0.52 0.15 Insignificant
MPS & EPS 0.83 Positive 0.69 0.09 significant
MPS & DPS 0.00 Zero 0.00 0.30 Insignificant
Source: Appendix 3
The simple correlation coefficient shows the relationship between one dependent
variable and other two independent variables. The correlation between MPS &
BVPS is 0.72. It shows that MPS has high degree of positive correlation with BVPS.
It indicates that when BVPS increases, MPS also increases & vice versa. The
coefficient of determination is 0.52, which indicates that 52% of the total change in
MPS is due to the effect of BVPS and rest 48% change in MPS is due to other
factors.
The correlation between MPS & EPS is 0.83. It shows that MPS has high degree of
positive correlation with EPS. It indicates that when EPS increases, MPS also
increases & vice versa. The coefficient of determination is 0.69, which indicates that
69% of the total change in MPS is due to the effect of EPS and rest 31% change in
MPS is due to other factors.
The correlation between MPS & DPS is 0.00. It shows that there is zero relation
between MPS & DPS. The increase or decrease in DPS leads no change in MPS of
this bank.
The significance of relationship between the variables is measured by calculating
P.E. of coefficient from the above table. The relationship of MPS & EPS is

53
significant, as r is greater than 6P.E. But, the relationship of MPS & BVPS is
insignificant, though r is greater than P.E, but is still lesser than 6P.E. And in the
case of relationship between MPS & DPS, it is insignificant, as r is smaller than P.E.
The linear relationship of EPS, DPS, BVPS and MPS of HBL is presented in the
figure 4.8

Fig No. 4.8

Relationship of EPS, DPS, BVPS and MPS of HBL

MPS EPS DPS BPS

2000

1500

1000

500

0
2004/05 2005/06 2006/07 2007/08 2008/09

From the simple regression analysis, the regression equation is found (MPS) being
dependent variable as:
MPS on EPS
MPS = -2196.57+ 63.20EPS
The regression constant -2196.57 implies that when EPS is zero, MPS is -2196.57.
The constant for EPS 63.20 implies that when EPS increases by Rs. 1, MPS
increases by Rs. 63.20 and vice versa. The simple correlation coefficient is 0.83.
MPS on BVPS
MPS = -4360.65 +23.67BVPS
The regression constant -4360.65 implies that when BVPS is zero, MPS is -4360.65.
The constant for BVPS 23.67 implies that when BVPS increases by Rs. 1, MPS
increases by Rs. 23.67 and vice versa. The simple correlation coefficient is 0.72.
MPS on DPS
MPS = 1499.76+0.013DPS

54
The regression constant 1499.76 implies that when DPS is zero, MPS is 1499.76.
The constant for DPS 0.013 implies that when DPS increases by Rs. 1, MPS
increases by Rs. 0.013and vice versa. The simple correlation coefficient is 0.

4.3.5 Correlation & Regression Analysis of SBI

Table 4.9 shows the relationship (correlation) of EPS, DPS & BVPS to MPS of SBI
along with the significance of such relationship.
Table No. 4.9
Relationship of EPS, DPS and BVPS with MPS of SBI
Coefficient of Significant/
Variables Relationship r2 P.E.
correlation (r) Insignificant
MPS & BVPS 0.75 Positive 0.56 0.13 Insignificant
MPS & EPS 0.82 Positive 0.67 0.10 significant
MPS & DPS 0.01 Positive 0.00 0.30 Insignificant
Source: Appendix5
The simple correlation coefficient shows the relationship between one dependent
variable and other two independent variables. The correlation between MPS & BVPS is
0.75. It shows that MPS has high degree of positive correlation with BVPS. It indicates
that when BVPS increases, MPS also increases & vice versa. The coefficient of
determination is 0.56, which indicates that 56% of the total change in MPS is due to the
effect of BVPS and rest 44% change in MPS is due to other factors.
The correlation between MPS & EPS is 0.82. It shows that MPS has high degree of
positive correlation with EPS. It indicates that when EPS increases, MPS also increases
& vice versa. The coefficient of determination is 0.67, which indicates that 67% of the
total change in MPS is due to the effect of EPS and rest 33% change in MPS is due to
other factors.
The correlation between MPS & DPS is 0.01. It shows that MPS has low degree of
positive correlation with DPS. It indicates that when DPS increases, MPS also increases
& vice versa. The coefficient of determination shows that 0.00% of the change in MPS
is elaborated by DPS and rest 100% change in MPS is due to other factors. It means
DPS of SBI has no any affect upon the MPS of this bank.

55
The significance of relationship between the variables is measured by calculating P.E. of
coefficient from the above table. The relationship of MPS & EPS is significant, as r is
greater than 6P.E. But, the relationship of MPS & BVPS is insignificant, though r is
greater than P.E, but is still lesser than 6P.E. And in the case of relationship between
MPS & DPS, it is insignificant, as r is smaller than P.E.
The linear relationship of EPS, DPS, BVPS and MPS of SBI is presented in the figure
4.9
Fig No. 4.9
Relationship of EPS, DPS, BVPS and MPS of SBI

MPS EPS DPS BPS

2000

1500

1000

500

0
2004/05 2005/06 2006/07 2007/08 2008/09

From the simple regression analysis, the regression equation is found (MPS) being
dependent variable as:
MPS on EPS
MPS = -163.44+ 46.90EPS
The regression constant -163.44 implies that when EPS is zero, MPS is -163.44. The
constant for EPS 46.90 implies that when EPS increases by Rs. 1, MPS increases by
Rs. 46.90 and vice versa. The simple correlation coefficient is 0.82.
MPS on BVPS
MPS = -3602.75 + 27.88BVPS
The regression constant -3602.75 implies that when BVPS is zero, MPS is -3602.75.
The constant for BVPS 27.88 implies that when BVPS increases by Rs. 1, MPS
increases by Rs. 27.88 and vice versa. The simple correlation coefficient is 0.75.
MPS on DPS
MPS = 1109.32 -0.64DPS

56
The regression constant 1109.32 implies that when DPS is zero, MPS is 1109.32.
The constant for DPS -0.64 implies that when DPS increases by Rs. 1, MPS
decreases by Rs. 0.64 and vice versa. The simple correlation coefficient is 0.005.
4.4 Price Situations of the Stocks of Listed Companies
Under this topic, we examine the pricing status of common stock i.e. whether
common stocks are overpriced or under priced or equilibrium priced. The pricing
status of stocks of particular firm is evaluated by comparing the required rate of
return with actual realized rate of return. This chapter presents calculations of actual
rate of return that a particular security has provided during the study period and its
corresponding required rate of return. Comparison between the actual realized rate
of return and required rate of return gives the way by which classification of stocks-
whether overpriced or under priced is possible. The greater the beta of a security,
greater will be the risk and the greater the expected return required. Likewise, the
lower the beta, lower will be the risk, the more valuable it becomes and the lower
the expected return required.
The beta coefficients, risk premiums and required rate of return on the stocks of
listed companies have been summarized in table 4.10
Table No. 4.10
Price situation of Common stock of listed companies
Name of  Rf Rm Risk Required Average Status
the (%) (%) Premium Rate of Rate of of the
Company (Rm–Rf) Return Return Stock
NABIL 1.24 38.70 48.21 Under
Priced
BOK 1.00 31.89 52.53 Under
Priced
EBL 0.98 31.32 35.06 Under
3.5 31.89 28.59
Priced
HBL 0.69 23.09 19.70 Over
Priced
SBI 0.65 21.95 48.21 Under
Priced
Source: Appendix 6 &7

57
From Table 4.16, it has been observed that the overall average market return is 31.89
%. The Treasury bill rate is 3.5 %. The risk premium for the stocks of all the banks
in the market is the difference between risk free rate and market rate of return i.e.
28.39 %.
The actual realized rate of return of NABIL is 48.21 % where as required rate of
return during the study period is 38.70% which is below the actual realized rate of
return. Therefore, the stock of NABIL during the study period is underpriced or
undervalued. Beta coefficient of NABIL is 1.24 which is more than 1 which
suggests that the stock of NABIL is aggressive.
Likewise actual realized rate of return of BOK is 52.53% where as required rate of
return is only 31.89% which is below the actual return. Thus the stock of BOK is
also underpriced. Beta coefficient of BOK is 1 which means it is fairly price stock.
The actual realized rate of return of EBL is 35.06 % where as required rate of return
during the study period is 31.32 % which is below the actual realized rate of return.
Therefore, the stock of EBL during the study period is underpriced. Beta coefficient
of EBL is 0.98 which is less than 1 which suggests that the stock of EBL is
defensive. Likewise actual realized rate of return of HBL is only 19.70% where as
required rate of return is 23.09% which is above the actual return. Thus the stock of
HBL is overpriced. Beta coefficient of HBL is 0.69 which is less than 1, so the stock
of HBL is considered as defensive stock.
Likewise actual realized rate of return of SBI is 48.21% where as required rate of
return is only 21.95% which is below the actual return. Thus the stock of SBI is also
underpriced. Beta coefficient of SBI is 0.65 which is less than 1, so the stock of SBI
is considered as defensive stock.
The stock of NABIL, BOK, EBL & SBI are attractive to the investors and need to be
bought by them rather than to sell. But the stock of HBL should be sold as it is under
priced. Over priced stocks are unattractive to investors.
Thus, the stock of NABIL, BOK, EBL & SBI are considered as underpriced stock.
The price of such underpriced stock increases in the future to meet the average rate
of return. The required rate of return would increase in near future to be in
equilibrium with the average rate of return. And the investors should buy it, to be
benefited from potential capital gain.
The stock of HBL is considered as overpriced stock. The average rate of return
would increase in near future to be in equilibrium with the required rate of return.

58
Thus, the investors should sell it currently before occurrence of loses, when its price
falls down.
4.5 Primary Data Analysis and Presentation
Another measure applied to gather information relevant to the topic is questionnaire
method. For collecting primary data, a questionnaire having a set of 7 questions were
prepared and presented to 20 respondents. The respondents were selected randomly
from the group of share known personalities especially from the share buyer/ purchasers
and college students
4.5.1 Classification of Respondents
A total of 20 respondents were surveyed randomly to conclude the movement of share
price of Nepalese Commercial Banks. Among these, 10 respondents were public
investors of share investment, 5 were potential investors who are willing to invest in
share but have not invested yet and rests 5 were bank personnel.
Table No. 4.11
Classification of Respondents
Basis of classification Number Percentage
Public Investors 10 50
Potential investors 5 25
Bank Personnel 5 25
Total 20 100
A number of questions were put by means of copies of questionnaire.
1. Have you ever hold the shares from the primary market?
The first question asked the respondents that, whether they have held the share from
primary market or not. Table No.4.18 shows the result of the responses.
Table No. 4.12
Number of Respondents holding the share in share market
S.N. Responses No. of respondents Percentage
1. Yes 15 75
2. No 5 25
Total 20 100

The above table shows the number of respondents holding the share in share market.
Majority of respondents i.e. 75% have hold the shares from primary market through
IPO. Still 25% are unknown about the share price and its capital gain. To know the

59
reasons of holding the share, respondents holding the shares were asked the question,
“What are the reasons for holding the shares from primary market?. Their responses
can be presented in table below:
Table No. 4.13
Reasons for holding the share in share market
S.N. Responses No. of Percentage
respondents
1. For dividend 10 67
2. Social status 0 0
3. For capital gain 5 33
4. Please, Specify if any other 0 0
Total 15 100

It is observed that 67 % of respondents hold the shares to have dividend amount in near
future. 33 % of respondents hold the shares to have benefited over capital gain. They
stated that they buy the shares at par value and sold it when share price goes higher, to
have benefited over the period.
Most of the investors are aware about dividend payment by the company. Huge
dividend payment means huge investors attracted to the company, which is good for the
company. The capital gain is uncertain in near future but dividend is certain. So,
investors always look for the huge dividend payment.
To know the answer of not holding the shares from primary market, a question was
asked among the respondents, “What may be the reasons for not holding the shares? The
responses given by the respondents are tabulated below:
Table No. 4.14
Reasons for not holding the share in share market
S.N. Responses No. of Percentage
respondents
1. Unaware of receiving dividend
2. Unaware about the procedures of 3 60
share application
3. Over fluctuation of share price 2 40
4. Please, Specify if any other 0 0
Total 5 100
The above table depicts that 60% of respondents don’t invest in primary market
because of unawareness about the procedures of share application. They don’t know

60
how to apply on it. Remaining 40% of respondents responded that there seems no
benefit for holding the shares. Share price always do fluctuates. They are fear of
losing their par amount too due to bearish market trend.
The political instability, liquidity crunch, economic slowdown and the rumor of the
banking and financial sector collapsing are the main reasons for bearish market
trend. Because of it, investors are fast losing hope. They sell their shares for
whatever price they get and proceed in other business. It has brought the market
shares to decline.

2. Do you agree that there is volatility in share price?

There is great fluctuation in share price. A rapid up down movement in stock price
leads to change in economic condition too. To know whether there is volatility in
stock price, a question was asked among the respondents. Their respondents are
tabulated as:
Table No. 4.15
No. of Respondents on Volatility in share price
S.N. Responses No. of respondents Percentage
1. Yes 20 100
2. No 0 0
Total 20 100
From the table, it is observed that 100 % of the respondents agreed with the
volatility of the share price. To know the reason why there is volatility on the share
price, a question was asked “What are the major factors for share volatility? Its
causes can be tabulated as follows:
Table No. 4.16
Factors for share price volatility
S.N. Responses No. of Percentage
respondents
1. Distribution of dividend 2 10
2. Signaling factors 8 40
3. Government Policies 10 50
4. Please, Specify if any other 0 0
Total 20 100
Majority of the respondents believe that, these up down movement is caused due to
unstable political policies. Political instability has being main cause for any type of

61
problem occurred. 40% of respondents believe that share volatility is caused due to
signaling factors which may be positive and negative both. Positive signal means
positive information about a firm which results in increase market share price. And
negative signal means negative information about a firm which results in reduction
in market share price. 10% of respondents believe that rise in dividend payment
conveys increase in market share and reduction in dividend payment conveys
decrease in market share.

3. Do you know that future share price can be predicted?

Investors invest in share market in return of capital gain. Capital gain is received
when share price get increased. Every investor desires for capital gain. So wants
future prediction to protect from future loss. Respondents were asked the question
about future prediction of share price. Their responses are presented in table below:

Table No. 4.17

No. of Respondents on Prediction of Future share price
S.N. Responses No. of respondents Percentage
1. Yes 20 100
2. No 0 0
Total 20 100

From the table, it is observed that 100 % of the respondents agreed with the
prediction of future share price. To know the reason how future share price could be
predicted, a question was asked “What are the major factors that would help to
predict the market price? The answers provided by the respondents are tabulated
below:

62
 Table No. 4.18
Factors to predict the future share price
S.N. Responses No. of Percentage
respondents
1. Historical price 0 0
2. Market analysis 12 60
3. Financial Data 8 40
4. Please, Specify if any other 0 0
Total 20 100
From the above table, it is observed that 60 % of respondents predict future share
price by analyzing current market trend. The increasing market trend in current
situation helps to predict increasing share price in future. Only 40% believe that
financial data could be taken as one of the factor for share price prediction.
Thus, for better prediction of share price, the bank or the company should disclose
their true and faithful financial information.

4. Is there any measure to increase net profit?

Net profit is one of the measuring rods of company success. The responses of the
respondents regarding measures to increase net profit are summarized and presented
below.
Table No. 4.19
Number of respondents to increase net profit
S.N. Responses No. of respondents Percentage
1. Yes 20 100
2. No 0 0
Total 20 100

From the table, it is observed that 100 % of the respondents agreed that there are
measures that would help to increase net profit of the company. To know the
measures of profit increment, a question was asked “What could be the measures to
increase net profit? The answers provided by the respondents are tabulated below:

63
 Table No. 4.20
Measure to increase net profit
S.N. Responses No. of Percentage
respondents
1. High deposit collection 1 5
2. Deduction in Expenditures 8 40
3. High margin in the rate of interest 10 50
among deposit and loan issue
4. Please, Specify if any other 1 5
Total 20 100

The respondents accepted that there are certain factors that would help to increase
net profit of the firm/company. 50 % of respondents accepted for, high margin in the
rate of interest between deposit and loan issue as major factors for increment of net
profit. 40 % of respondents also considered reduction in expenditures as one of the
factors for net profit increment. Only 5 % believe the high deposit collection as other
factors for increase in profit. Besides these, one of the respondents believed that
there should be high investment by utilizing the deposit so collected that leads to
increase in net profit.

5. Do you know that the share price gets decreased?

The market share price of any asset depends on the earning power of the assets. The
prices of shares are determined by demand and supply preferences. To know the
answer whether the price of the share gets decrease, a question was asked. The
respondents given by the respondents are tabulated below:
Table No. 4.21
No. of Respondents on Reduction of share price
S.N. Responses No. of respondents Percentage
1. Yes 20 100
2. No 0 0
Total 20 100
From the above table, it is observed that 100 % of respondents are aware about
change occur in share price. There is loss if the share price gets reduced below the
par value. Investors invest in share price in order to gain return from capital gain or
increased share price. They will get loss, if share price get decreased. To know the

64
reason of share price decrement, a question was asked “What are the reasons why
share price are decreased? The answers provided by the respondents are tabulated
below:
Table No. 4.22
Factors for share price reduction
No. of
S.N. Responses Percentage
respondents
1. Political instability 13 65
2. Delay in trading mechanism 5 25
3. High interest rate on loan 2 10
4. Please, Specify if any other 0 0
Total 20 100
From the table, it is observed that the main reason for share price reduction is
political instability. 65 % of respondents accepted that political instability is the
main reason for the decreasing in share price followed by trading mechanism and
high interest on loan, the third one respectively. It has brought crisis on every scope
of economic condition. Investors are losing hope to have effective return in such
situation. They have started selling their shares for whatever price they get and
proceed in other businesses. 10% of respondents stated that it has caused due to high
interest on loan that leads to liquidity crisis to the banking sector. General people
have no money to invest in share market. 25 % stated that investors generally have
to waste a lot of time in trading mechanism of share price. So, they generally don’t
want to invest in share price.
For the better trading mechanism, there also should be online buying and selling of
shares in order to facilitate the investors.

6. Do you know that Company distributes dividend?

Dividend is the part of net profit. Investors invest in share market in return of high
dividend payment. To know whether respondents were aware about the dividend
distribution, a question was asked, “Do you know that Company distributes
dividend”. The responses indicated by the respondents are tabulated below:

65
 Table No. 4. 23
No. of Respondents knowing on Dividend distribution
S.N. Responses No. of respondents Percentage
1. Yes 20 100
2. No 0 0
Total 20 100

From the table, it is observed that 100 % of the respondents agreed with the
distribution of dividend. To know the reason of dividend distribution, a question was
asked “What are the reasons for dividend distribution? The answers provided by the
respondents are tabulated below:
Table No. 4. 24
Reasons for Dividend distribution
S.N. Responses No. of
Percentage
respondents
1. High profit 14 70
2. To attract investors 6 30
3. To increase DPS 0 0
4. Please, Specify if any other 0 0
Total 20 100

From the table, it is observed that 70% of respondents argued on distribution of

dividend when the company is in profit. Only the higher profit earning company
distributes dividend. None of the respondents stated for increasing DPS because they
clarified that high DPS means high profit. 30 % of respondents stated that company
distributes dividend to attract investors.
But in real context, only high profit earning company distributes dividend. To earn
high profit, the company should adopt different measures for it. Due to high
dividend distribution, the investors are attracted towards the company, which is
really good for the company.

7. Have you ever invested your money in secondary market?

Majority of the people invest in primary market, but only minority of the people do
invest in secondary market. To know the number of investors in secondary market, a

66
question was asked, “Have you ever invested your money in secondary market?”
The responses regarding the investment of money in share market are presented
below:
Table No. 4.25
No. of Respondents investing in secondary market
S.N. Responses No. of respondents Percentage
1. Yes 8 40
2. No 12 60
Total 20 100

From the table, it is observed that, only 40% invest their money in secondary
market. 60 % respondents are still unfamiliar about secondary market. To know the
different factors that helped in decision making before investing in secondary
market, 40% respondents were asked a question, “What factors play the major role
in decision making before its investment?” The factors as indicated by respondents
are presented below:
Table No. 4.26
Factors for decision taking
S.N. Responses No. of
Percentage
respondents
1. Current market price 6 75
2. Expert analysis 0 0
3. Own analysis 2 25
4. Please, Specify if any other 0 0
Total 8 100

There are various factors that would depend on their decisions. 75% of respondents
take decisions based on the current market price. Before investing in share market,
they first look over the market trend. Increasing market trend indicates selling
decision and decreasing market trend indicates buying decision. None of the
respondents have accepted for expert advice. Rather 25 % of respondents like to take
their own analysis. If investors are made aware about trading mechanism of
secondary market, 40% can be raised to higher.

67
To know the reasons of unfamiliar about secondary market, a question was asked,
among the 60% respondents “What may be the reasons for not investing in
secondary market?” Their responses regarding this question are tabulated below:

Table No. 4.27

Number of Respondents not investing in secondary market
S.N. Responses No. of respondents Percentage
1. Unaware about procedures of
2 17
secondary market
2. Delay procedures of secondary
6 50
market
3. For achievement of benefits 4 33
4. Please, Specify if any other 0 0
Total 12 100

50% of respondents responded that they are not interested to invest in secondary
market due to its delaying procedures. Though there had been automated
computerized system, than before open-out cry system, there is still delay in
procedures. 33% of respondents hold the shares from primary market in
achievement of benefits like dividend, bonus shares, right share etc. They don’t
want to lose it, by selling their shares. They have lost their expectation on increment
of share price in near future. 17% respondents are unknown about the procedures of
secondary market, though it is in delay. They are unaware about the different
procedures of buying and selling shares in secondary market.

4.6 Major Findings of the study

 From the secondary data analysis, it is known that, there is not consistent
performance in the relationship of MPS with EPS, DPS & BVPS for the five
sampled banks over the five year period. With regards to EPS, BVPS &
MPS, it is found that HBL has good performance and with regards to DPS,
EBL has good performance.
 From the above analysis, it is observed that stock of NABIL, BOK, EBL &
SBI are underpriced stocks as its average rate of return is higher than
required rate of return. And of HBL is overpriced stock as average rate of
return is lower than its required rate of return.

68
 From the primary data analysis, it is shown that mostly public investors hold
the shares for dividend. Majority of respondents believe that an unstable
political policy has been main cause for share volatility. Due to unstable
government policies, market price is in fluctuating trend. Signaling factors
are also the one of the cause of share price volatility. Positive signaling
results in increase in market share and negative signaling results in reduction
in share price.

69
 CHAPTER V
SUMMRY, CONCLUSION AND RECOMMENDATION
The first chapter presented earlier about a brief introduction of the study and the
review of literature with possible review of journals, ideas and thesis have also been
presented in the second chapter. Total of the available data are presented and
analyzed in fourth chapter and methodology for the study has also been described
earlier in the third chapter.
Now in this chapter, focuses on some selected action oriented findings, conclusion
and recommendation on the basis of analysis. This chapter is very important in the
sense that:
 It shows the result what was observed during research.
 It concludes the findings in an understandable form and
 It provides clues of suggestions to the concerned authorities as well as
practioners and academicians. The recommendation is presented in the last
part of this considering major findings.

5.1 Summary
Nepal has adopted the path of economic development through liberalization. Andy
strategy, however, for development requires a steady supply of medium to long-
term capital funds for productive investment. Companies raise required funds by
issuing securities in regulated money and the capital market. The mostly used
securities are share, debentures and bonds. The share includes common shares and
preferences shares.
Nepalese Stock Market is in developing stage. Most of the general public i.e.
average citizens are still unaware about it. Though, Share Market plays a vital role
on the mobilization of capital in national economy, in the case of Nepal, it is still
crawling towards the betterment.
NYSE was the first stock market in the history of global investment literature. The
US government issued debt certificates in 1790, then the market for securities
expanded widely and trading became more active. The share market in Nepal began
with the establishment of Biratnagar Jute Mill Ltd and Nepal Bank Ltd. in 1937.
Introduction Company Act in 1964, the first issuance of Government Bond in 1964
and the establishment of Securities Exchange Center Ltd. in1976 were other

70
significant developments regarding the Capital Market. But the stock market in
Nepalese context is a recent phenomenon. Listing of shares in the secondary market
through the institutional brokerage system started only after the restoration of
democracy in 1990. SEC was bifurcated into two distinct entities i.e. SEBON and
NEPSE in 1998. thus, the stock market in Nepal is in its infancy stage.
Investors invest their savings in the Common Stock of public companies through
Primary and Secondary Markets. Generally, the investors aimed to maximize their
profit from their investment. But due to the lack of proper knowledge and poor
regulatory performance of Nepalese Capital Market, the investors may not achieve
the returns as expected. Only the few educated city dwellers know what share
market is and how they are regulated. Besides, government has not prioritized the
development of capital market sufficiently.
The prime objective of this study is to find out the stock price movement and
financial performance of listed companies in NEPSE. Hence, 5 companies listed in
NEPSE are taken in consideration for the purpose. Market Price of these institutions
has been analytically tested here to compare with other financial indicators like EPS,
DPS and BVPS. For each analysis secondary data has been gathered from the
different sources and different statistical tools and financial tools have been used to
analyze these. Not only this, respondents were requested to fill up the questionnaire
aiming to collect primary data related to share price of listed companies. The result
of the respondent has been analyzed thoroughly in this thesis.
For the convenience, the study has been divided in five main chapters, viz. i)
Introduction, ii) Review of Literature, iii) Research Methodology, iv) Data
Presentation and Analysis and v) Summary, Conclusion and Recommendation.

5.2 Conclusion
From the data analysis and major findings, the following conclusion can be drawn:
 It can be concluded that among the five sampled banks, the financial strength
and performance of HBL is the highest with regards to EPS, BPS & MPS.
And with regards to DPS, NABIL has good one.
 The regression analysis shows that MPS of all the banks are influenced by its
EPS. NABIL bank is least affected by its EPS and highly affect to BOK.

71
 Thus, to increase its share price, sampled companies should do better on
improving its EPS.
 The correlation analysis shows that there is high degree of positive
relationship of MPS with EPS among all other different variable. Though,
there is positive relationship, there is insignificant relationship of MPS and
EPS of NABIL. The above data shows the insignificant relationship between
MPS and DPS among all banks over the five years period. There is
insignificant relationship between MPS and BPS among all banks except
EBL. EBL has significant relationship between MPS and BPS.
 The average rate of return of four stocks is higher than required rate of
return. So, these stocks are under priced and should be bought and held in
order to gain profit from price gain. And the stock of HBL is lower than
required rate of return. It is overpriced and should be sold. Investors
generally preferred to buy under priced stock and hold it in future too. The
stock of HBL is overpriced and is unattractive to buyers. Thus, to make it
better, its required rate of return should be decreased and cash flows should
be increased.
 When primary questionnaire were asked among the public investors, it was
known that most investors were unknown about share procedure including
both primary and secondary market. The general investors generally hold the
share of the market in return of dividend. It is known that, they also hold the
share in return of extra benefits like bonus shares, right shares etc.
 The market trend analysis has been major factor before investing in
secondary market. They usually prefer the stock to invest, whose market
price is higher.

5.3 Recommendation
The following suggestions can be recommended regarding the share price of listed
companies, on the basis of the data analyzed in the previous sections.
 The performance of commercial banks is better than the other sector so it is
recommended to the investors to invest their investment in this sector.
 Since general public are unaware about the share and share market, an
organized effort is necessary to aware the public about it. Online buying and

72
 selling of the shares should be made possible in order to facilitate the
investors.
 True, scrutinized and credible information about the listed companies are not
available because of absence of credible rating system. So, it is
recommended to the concerned body that independent rating agencies should
be encouraged to establish here so, that potential investors will have to
confident picture of financial health and future prospects of company.
 Frequent seminars organized by the company can help to draw the attention
of the company management and concerned authorities to explore practical
way and means of restoring the rights and safeguarding the interest of
shareholders.
 In current political situation, Nepalese capital market cannot function well.
Stable government and proper rules and regulation in capital market are the
prime necessity.
 SBI Bank is suggested to maintain the higher EPS by using its owner’s
equity effectively.
 The MPS of HBL shows good performance, so it is recommended to
maintain at least the same position in near future.
 Operational efficiency and profitability of companies should be improve to
regain the shareholder’s confidence so that they will have automatic demand
for shares of companies and thereby raise the share price.
 SEBON should protect the interest and right of investors and should work as
per too. As investors play the key role on the performance of securities
market.

73
 BIBLIOGRAPHY
Books Reference:
Bajracharya, S. M. and Bhattrai, R. (2007) “Corporate Financial Manangement”,
Buddha Academic Enterprises Pvt. Ltd
Bell J. (1999) “How to complete your research project successfully”, UBS
publishers’ Distributers Ltd., Delhi
Bhandari, D. R., (2005), “Banking and Insurance”, Kathmandu: Aayush
Publication.
Bhattrai, R. (2008) “Capital Structure Management” Dhaulagiri Books and
stationery
Dahal, B. and Dahal, S.. (1992). “A Hand Book to Banking”, Kathmandu: Asmital
Books and Stationary.
Francis, J. C. (1997), “Investment Analysis and Management”, New York: MC
Graw Hill Book Company
Gautam, R.R. and Thapa, K., (2008) “Capital Structure Management”, Asmita
publication
Gupta, S.C. & Kapoor, V.K, “Fundamental of Mathematical Statistics” New
Delhi: Sultan Chand & Sons
Kothari, C. R. (1994) “Research Methodology, Methods and Techniques”, New
Delhi: Vikash Publication House Pvt. Ltd,
MONGA, G.S (2000) “Mathematics and statistics for economics” New Delhi:
Vikas Publication House Pvt. Ltd. Masjid Road, Jangpura,
Ojha, K. P. Bhattarai, I. (2005) “Corporate Financial Reporting in Nepal: The
effect of changes in price level” Kathmandu: Asmita Books publishers and
Distributors
Paudel, N. P. (2067). “Nepalese Financial System and Investment Environment”,
Kathmandu: Ratna Pustak Bhandar
Pradhan, R.S. (1994). “Financial Management Practices in Nepal”, New
Delhi:Vikas Publishing House Pvt. Ltd.
Sharma, P. K. & Chaudhary, A.K, “Statistical Methods”, Khanal Books and
Stationery, Kathmandu.
Sthapit, Gautam, Joshi et. all. (2005) “Statistical Methods”, Kathmandu: Buddha
Academic Enterprises Pvt. Ltd.

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Thapa, Bhattarai et.all. (2008). “Investments: Theory and Solution”, Kathmandu:
Asmita publication
Wolf, H. K, and Pant P.R. (2000) “Social Science Research & Thesis Writing”,
Kathmandu: Buddha Academic Enterprises Pvt. Ltd
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Journals and Articles Reference:
Fama, E., (1970), “Efficient Capital Market: A Review of Theory and Emperical
Work” Journal of Finance, Vol. XXV, No 2, New York: American Finance
Association
Kafle, D. R. (2004), “Capital Market in Nepal: Looking Ahead”, Journal of the
Institute of chartered Accountants of Nepal, Kathmandu
NRB. (2009 Mid January) “Banking and Financial Statistics” Nepal Rastra Bank,
Kathmandu.
Paudel, N. P. “Investing in Shares of Commercial Banks in Nepal: An assessment
of return and risk elements”
Shrestha, S. (2004)”Thesis writing in MBS: Procedures and Practices”, The
Journal of Nepalese Business Studies Vol. I No.1 December
Shrestha, S. K. and Baral, K. J. (2006, Dec.) “Daily Stock Price Behavior of
Commercial Banks in Nepal: The Journal of Nepalese Business Studies”, Vol. III
No. 1
Shrestha,. M. K. (2004). .“A Journal of Management and Development Review”

Thesis & Dissertations Reference:

Amatya, A. (2005), “Brokerage Services and Stock Price Movement in NEPSE”
An Unpublished Master Level Thesis, Shankar Dev Campus, Kathmandu
Aryal, M.. (1997). “General Behavour of Stock Market Price” Unpublished Thesis
submitted to Central Department of Thesis Management. T.U. Kirtipur
Baral, D. R, (2003), “Stock Price Movement in Nepalese securities Market”, An
Unpublished Master Level Thesis, Shankar Dev Campus, Kathmandu.
Basnet, B. K. (2010). “Determinants of stock price of listed companies in Nepal
stock exchange”. An Unpublished Master Level Thesis, Nepal Commerce Campus,
Kathmandu.
Bhatt, B. P., (2009). “The Stock Price Determination of Commercial Banks in
NEPSE”, An Unpublished Master Level Thesis, Shankar Dev Campus, Kathmandu.

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Dhakal, S.(2003). “Dividend and Stock Price Behaviour”. Unpublished Thesis
submitted to Central Department of Thesis Management. T.U. Kirtipur.
Giri, N. (2005). “Stock price behaviour of listed companies”. An Unpublished
Master Level Thesis, Shankar Dev Campus, Kathmandu.
Karki, R. H. (2007), “Dividend and Stock Price”, An Unpublished Master Level
Thesis, Shankar Dev Campus, Kathmandu.
Paudel, G. (2003). “A Study on the Movement of Stock Prices in Relation to Joint
Venture Commercial banks” MBS diss., Tribhuvan University.
Shrestha, P. (2006), “Share price Behaviour of Commercial Bank Listed in
NEPSE”, An Unpublished Master Level Thesis, Shankar Dev Campus, Kathmandu
Shrestha, R. M. (2004), “Share prices Behaviour in Nepal”, An Unpublished
Master Level Thesis, Central Department of Management, Tribhuvan University.
Subedi, M. (2009), “A study on stock price movement of Nepalese commercial
banks”, An Unpublished Master Level Thesis, Nepal Commerce Campus,
Kathmandu.
Subedi, R. (2005), “Stock Price Behaviour in Nepal”, An Unpublished Master
Level Thesis, Central Department of Management, Tribhuvan University.
.
Web References:
www.everestbankltd.com
www.nabilbank.com
www.himalayanbank.com
www.nepalsbi.com.np
www.bok.com.np
www.google.com
www.nrb.org.np, Banking and financial statistics
www.wikipedia.com
www.indianinfoline.com
www.scribd.com
www.nepsenews.com

76
 Appendix 1
i. Simple Correlations and Regression Analysis between Market Price per
Share and Earning Per Share of BOK
Year MPS(X) EPS(Y) X2 Y2 XY
2061/62 430 30.1 184900 906.01 12943
2062/63 850 43.67 722500 1907.07 37119.5
2063/64 1375 43.5 1890625 1892.25 59812.5
2064/65 2350 59.94 5522500 3592.80 140859
2065/66 1825 54.68 3330625 2989.90 99791
N=5 6830 231.89 11651150 11288.03 350525

From the above table,

N = 5, X = 6830, Y = 231.89, X2 = 11651150, Y2 = 11288.03, XY = 350525
r = 0.96 (calculation made through excel worksheet)
r2 = 0.92

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
6830 = 5a + b231.89…… (iv)
350525 = a231.89 + b11288.03…… (v)

Again, solving it, we get,

a = -1569.26
b = 63.29
Substituting the values of a and b in equation (i), we get regression equation as,
X = -1569.26 + 63.29 Y
OR
MPS = -1569.26 + 63.29 EPS

77
ii. Simple Correlations and Regression Analysis between Market Price per
Share and Dividend per Share of BOK
Year MPS(X) DPS(Y) X2 Y2 XY
2061/62 430 15 184900 225 6450
2062/63 850 18 722500 324 15300
2063/64 1375 20 1890625 400 27500
2064/65 2350 2.11 5522500 4.45 4958.5
2065/66 1825 7.37 3330625 54.32 13450.25
N=5 6830 62.48 11651150 1007.77 67658.75

From the above table,

N = 5, X = 6830, Y = 62.48, X2 = 11651150, Y2 = 1007.77, XY =
67658.75
r = -0.77(calculation made through excel worksheet)
r2 = 0.59

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
6830 = 5a + b62.48…… (iv)
67658.75 = a62.48 + b1007.77…… (v)

Again, solving it, we get,

a = 2339.69
b = -77.92
Substituting the values of a and b in equation (i), we get regression equation as,
X = 2339.69 - 77.92Y
OR
MPS = 2339.69 - 77.92DPS

78
iii. Simple Correlations and Regression Analysis between Market Price per
Share and Book value per Share of BOK
Year MPS(X) BVPS(Y) X2 Y2 XY
2061/62 430 213.6 184900 45625.0 91848
2062/63 850 230.67 722500 53208.6 196069.5
2063/64 1375 164.68 1890625 27119.5 226435
2064/65 2350 222.51 5522500 49510.7 522898.5
2065/66 1825 206.25 3330625 42539.1 376406.3
N=5 6830 1037.71 11651150 218002.9 1413657

From the above table,

N = 5, X = 6830, Y = 1037.71, X2 = 11651150, Y2 = 218002.9
XY =1413657
r = -0.049 (calculation made through excel worksheet)
r2 = 0

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
6830 = 5a + b1037.71…… (iv)
1413657 = a1037.71 + b218002.9…… (v)

Again, solving it, we get,

a = 1669.01
b = -1.46
Substituting the values of a and b in equation (i), we get regression equation as,
X = 1669.01 - 1.46
OR
MPS = 1669.01 - 1.46BVPS

79
 Appendix 2
i. Simple Correlations and Regression Analysis between Market Price per
Share and Earning Per Share of NABIL
Year MPS(X) EPS(Y) X2 Y2 XY
2061/62 1505 105.49 2265025 11128.14 158762.5
2062/63 2240 129.21 5017600 16695.22 289430.4
2063/64 5050 137.08 25502500 18790.93 692254
2064/65 5275 108.31 27825625 11731.06 571335.3
2065/66 4899 106.76 24000201 11397.70 523017.2
N=5 18969 586.85 84610951 69743.04 2234799

From the above table,

N = 5, X = 18969, Y = 586.85, X2 = 84610951, Y2 = 69743.04, XY =
2234799
r = 0.08(calculation made through excel worksheet)
r2 = 0.0064

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
18969 = 5a + b586.85…… (iv)
2234799 = a586.85+ b69743.04…… (v)

Again, solving it, we get,

a = 2651.90
b = 9.73
Substituting the values of a and b in equation (i), we get regression equation as,
X = 2651.90 + 9.73Y
OR
MPS = 2651.90 + 9.73EPS

80
ii. Simple Correlations and Regression Analysis between Market Price per
Share and Dividend per Share of NABIL
Year MPS(X) DPS(Y) X2 Y2 XY
2061/62 1505 70 2265025 4900 105350
2062/63 2240 85 5017600 7225 190400
2063/64 5050 100 25502500 10000 505000
2064/65 5275 60 27825625 3600 316500
2065/66 4899 35 24000201 1225 171465
N=5 18969 350 84610951 26950 1288715

From the above table,

N = 5, X = 18969, Y = 350, X2 = 84610951, Y2 = 26950, XY = 1288715
r = -0.22 (calculation made through excel worksheet)

r2 = 0.0484
Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
18969 = 5a + b350…… (iv)
1288715 = 350a + b26950…… (v)

Again, solving it, we get,

a = 4911
b = -15.96
Substituting the values of a and b in equation (i), we get regression equation as,
X = 4911 - 15.962Y
OR
MPS = 4911-15.96DPS

81
iii. Simple Correlations and Regression Analysis between Market Price per
Share and Book value per Share of NABIL
Year MPS(X) BVPS(Y) X2 Y2 XY
2061/62 1505 337 2265025 113569 507185
2062/63 2240 381 5017600 145161 853440
2063/64 5050 418 25502500 174724 2110900
2064/65 5275 354 27825625 125316 1867350
2065/66 4899 324 24000201 104976 1587276
N=5 18969 1814 84610951 663746 6926151

From the above table,

N = 5, X = 18969, Y = 1814, X2 = 84610951, Y2 = 663746, XY = 6926151
r = 0.16 (calculation made through excel worksheet)

r2 = 0.026
Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
18969 = 5a + b1814…… (iv)
6926151 = a1814+ b663746…… (v)

Again, solving it, we get,

a = 945.82
b = 7.85
Substituting the values of a and b in equation (i), we get regression equation as,
X = 945.82 + 7.85Y
OR
MPS = 945.82 + 7.85BVPS

82
 Appendix 3
i. Simple Correlations and Regression Analysis between Market Price per
Share and Earning Per Share of HBL
Year MPS(X) EPS(Y) X2 Y2 XY
2061/62 920 47.91 846400 2295.368 44077.2
2062/63 1100 59.24 1210000 3509.378 65164
2063/64 1740 60.66 3027600 3679.636 105548.4
2064/65 1980 62.74 3920400 3936.308 124225.2
2065/66 1760 61.9 3097600 3831.61 108944
N=5 7500 292.45 12102000 17252.3 447958.8

From the above table,

N = 5, X = 7500, Y = 292.45, X2 = 12102000, Y2 = 17252.3, XY =
447958.8
r = 0.83 (calculation made through excel worksheet)
r2 = 0.69

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
7500 = 5a + b292.45…… (iv)
447958.8 = a292.45 + b17252.3…… (v)

Again, solving it, we get,

a = -2196.57
b = 63.20
Substituting the values of a and b in equation (i), we get regression equation as,
X = -2196.57 + 63.20Y
OR
MPS = -2196.57 + 63.20EPS

83
ii. Simple Correlations and Regression Analysis between Market Price per
Share and Dividend per Share of HBL
Year MPS(X) DPS(Y) X2 Y2 XY
2061/62 920 11.58 846400 134.0964 10653.6
2062/63 1100 30 1210000 900 33000
2063/64 1740 15 3027600 225 26100
2064/65 1980 25 3920400 625 49500
2065/66 1760 12 3097600 144 21120
N=5 7500 93.58 12102000 2028.096 140373.6

From the above table,

N = 5, X = 7500, Y = 93.58, X2 = 12102000, Y2 = 2028.096, XY =
140373.6
r = 0 (calculation made through excel worksheet)
r2 = 0

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
7500 = 5a + b93.58…… (iv)
140373.6 = a93.580+ b2028.096…… (v)

Again, solving it, we get,

a = 1499.76
b = 0.013
Substituting the values of a and b in equation (i), we get regression equation as,
X = 1499.76+ 0.013Y
OR
MPS = 1499.76 + 0.0136 DPS

84
iii. Simple Correlations and Regression Analysis between Market Price per
Share and Book value per Share of HBL
Year MPS(X) BVPS(Y) X2 Y2 XY
2061/62 920 239.59 846400 57403.37 220422.8
2062/63 1100 228.72 1210000 52312.84 251592
2063/64 1740 264.74 3027600 70087.27 460647.6
2064/65 1980 247.95 3920400 61479.2 490941
2065/66 1760 256.52 3097600 65802.51 451475.2
N=5 7500 1237.52 12102000 307085.2 1875079

From the above table,

N = 5, X =7500, Y = 1237.52, X2 =12102000, Y2 =307085.2, XY =
1875079
r = 0.72 (calculation made through excel worksheet)
r2 = 0.52

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
7500 = 5a + b1237.52…… (iv)
1875079 = a1237.52 + b307085.2…… (v)

Again, solving it, we get,

a = -4360.65
b = 23.67
Substituting the values of a and b in equation (i), we get regression equation as,
X = -4360.65 + 23.67Y
OR
MPS = -4360.65 + 23.67BVPS

85
 Appendix 4
i. Simple Correlations and Regression Analysis between Market Price per
Share and Earning Per Share of EBL
Year MPS(X) EPS(Y) X2 Y2 XY
2061/62 870 54.22 756900 2939.81 47171.4
2062/63 1379 62.78 1901641 3941.33 86573.6
2063/64 2430 78.42 5904900 6149.70 190560.6
2064/65 3132 91.82 9809424 8430.91 287580.2
2065/66 2455 99.99 6027025 9998.00 245475.5
N=5 10266 387.23 24399890 31459.75 857361.3

From the above table,

N = 5, X = 10266, Y = 387.23, X2 = 24399890, Y2 = 31459.75
XY = 857361.3
r = 0.89(calculation made through excel worksheet)
r2= 0.79

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
10266 = 5a + b387.23…… (iv)
857361.3 = a387.23 + b31459.75…… (v)

Again, solving it, we get,

a = -1228.19
b = 42.37
Substituting the values of a and b in equation (i), we get regression equation as,
X = -1228.19 + 42.37Y
OR
MPS = -1228.19 + 42.37EPS

86
ii. Simple Correlations and Regression Analysis between Market Price per
Share and Dividend per Share of EBL
Year MPS(X) DPS(Y) X2 Y2 XY
2061/62 870 0 756900 0 0
2062/63 1379 25 1901641 625 34475
2063/64 2430 10 5904900 100 24300
2064/65 3132 20 9809424 400 62640
2065/66 2455 30 6027025 900 73650
N=5 10266 85 24399890 2025 195065

From the above table,

N = 5, X = 10266, Y = 85, X2 = 24399890, Y2 = 2025, XY = 195065
r = 0.47 (calculation made through excel worksheet)
r2 = 0.22

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
10266 = 5a + b85…… (iv)
195065 = a85 + b2025…… (v)

Again, solving it, we get,

a = 1451.06
b = 35.42
Substituting the values of a and b in equation (i), we get regression equation as,
X = 1451.06 + 35.42Y
OR
MPS = 1451.06 + 35.42DPS

87
iii. Simple Correlations and Regression Analysis between Market Price per
Share and Book value per Share of EBL
Year MPS(X) BVPS(Y) X2 Y2 XY
2061/62 870 219.87 756900 48342.8 191286.9
2062/63 1379 217.64 1901641 47367.2 300125.56
2063/64 2430 280.82 5904900 78859.9 682392.6
2064/65 3132 321.77 9809424 103535.9 1007783.64
2065/66 2455 313.64 6027025 98370.0 769986.2
N=5 10266 1353.74 24399890 376475.8 2951574.9

From the above table,

N = 5, X = 10266, Y = 1353.74, X2 = 24399890, Y2 = 376475.8, XY =
2951574.9
r = 0.95 (calculation made through excel worksheet)
r2 = 0.90

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
10266 = 5a + b1353.74…… (iv)
2951574.9 = a1353.74 + b376475.8…… (v)

Again, solving it, we get,

a = -2628.03
b = 17.29
Substituting the values of a and b in equation (i), we get regression equation as,
X = -2628.03 + 17.29Y
OR
MPS = -2628.03 + 17.29 BVPS

88
 Appendix 5
i. Simple Correlations and Regression Analysis between Market Price per
Share and Earning Per Share of SBI
Year MPS(X) EPS(Y) X2 Y2 XY
2061/62 335 13.29 112225 176.624 4452.2
2062/63 612 18.27 374544 333.793 11181.2
2063/64 1176 39.35 1382976 1548.423 46275.6
2064/65 1511 28.33 2283121 802.589 42806.6
2065/66 1900 36.18 3610000 1308.992 68742.0
N=5 5534 135.42 7762866 4170.421 173457.6

From the above table,

N = 5, X = 5534, Y = 135.42, X2 = 7762866, Y2 = 4170.421, XY =
173457.6
r = 0.82 (calculation made through excel worksheet)
r2 = 0.67

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
5534 = 5a + b135.42…… (iv)
173457.6 = a135.42 + b4170.421…… (v)

Again, solving it, we get,

a = -163.44
b = 46.90
Substituting the values of a and b in equation (i), we get regression equation as,
X = -163.44 + 46.90Y
OR
MPS = -163.44 + 46.90 EPS

89
ii. Simple Correlations and Regression Analysis between Market Price per
Share and Dividend per Share of SBI
Year MPS(X) DPS(Y) X2 Y2 XY
2061/62 335 0 112225 0 0
2062/63 612 5 374544 25 3060
2063/64 1176 12.59 1382976 158.5081 14805.84
2064/65 1511 0 2283121 0 0
2065/66 1900 2.11 3610000 4.4521 4009
N=5 5534 19.7 7762866 187.9602 21874.84

From the above table,

N = 5, X = 5534, Y = 19.7, X2 = 7762866, Y2 = 187.9602, XY = 21874.84
r = 0.005 (calculation made through excel worksheet)
r2 = 0

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
5534 = 5a + b19.7…… (iv)
21874.84 = a19.7+ b187.9602…… (v)

Again, solving it, we get,

a = 1109.32
b = -0.64
Substituting the values of a and b in equation (i), we get regression equation as,
X = 1109.32 - 0.64Y
OR
MPS = 1109.32 - 0.64 DPS

90
iii. Simple Correlations and Regression Analysis between Market Price per
Share and Book value per Share of SBI
Year MPS(X) BVPS(Y) X2 Y2 XY
2061/62 335 159.54 112225 25453.0 53445.9
2062/63 612 151.78 374544 23037.2 92889.4
2063/64 1176 178.04 1382976 31698.2 209375.0
2064/65 1511 160.57 2283121 25782.7 242621.3
2065/66 1900 194.68 3610000 37900.3 369892.0
N=5 5534 844.61 7762866 143871.4 968223.6

From the above table,

N = 5, X = 5534, Y = 844.61, X2 = 7762866, Y2 = 143871.4, XY =
968223.6
r = 0.75 (calculation made through excel worksheet)
r2 = 0.56

Regression Equation of X on Y
X = a + bY…… (i)
Where, X = Dependent variable
Y = Independent variable
The values of a and b determined from the normal equation
X = na + bY…… (ii)
XY = aY + bY2…… (iii)
Now, substituting the values in equation (ii) and (iii), we get,
5534 = 5a + b844.61…… (iv)
968223.6 = a844.61 + b143871.4…… (v)

Again, solving it, we get,

a = -3602.75
b = 27.88
Substituting the values of a and b in equation (i), we get regression equation as,
X = -3602.75 + 27.88
OR
MPS = -3602.75 + 27.88 BVPS

91
 Appendix 6

Calculation of Market Return (Rm)

NEPSE _ _ 2
Year Annual Return (Rm) R -R (R -R )
Index m m m m
2060/61 222.04
2061/62 286.67 0.2911 -0.0279 0.0008
2062/63 386.83 0.3494 0.0305 0.0009
2063/64 683.95 0.7681 0.4492 0.2017
2064/65 963.36 0.4085 0.0896 0.0080
2065/66 749.1 -0.2224 -0.5413 0.2931
_ 2
R = 1.5947
m  (R -R ) = 0.5045
m m

Where,
Ending NEPSE Index-Beginning NEPSE Index
R = Beginning NEPSE Index
m

__ R
m 1.5947
Average Market Return ( R m) = N = 5 = 0.3189= 31.89 %

__ 2
(R - R )
m m 0. 5045
Standard Deviation of Market Return (σm) = N = 5 = 0.3176

2
Variance of Market Return (σ2m) = 0.3176 = 0.1009

92
 Appendix 7
i. Calculation of Actual Rate of Return and Required Rate of Return of BOK
Closing Cash _ _ _ _
Year R
j R -R R -R (R -R )(R -R )
Price Dividend m m j j m m j j
2060/61 295
2061/62 430 15 0.5085 -0.0279 -0.0169 0.0005
2062/63 850 18 1.0186 0.0305 0.4933 0.0150
2063/64 1375 20 0.6412 0.4492 0.1158 0.0520
2064/65 2350 2.11 0.7106 0.0896 0.1853 0.0166
2065/66 1750 7.37 -0.2522 -0.5413 -0.7775 0.4209
_ _
R =2.6267
j (R -R )(R -R ) = 0.5050
m m j j
Where,
Ending Price - Beginning Price + Cash Dividend
Rj = Beginning Price

__ Rj 2.6267
Average Actual Rate of Return ( R j) = N = 5 = 0.5253 = 52.53 %
__ __
[(Rj- R j) (Rm- R m)] 0.5050
Co-Variance, Cov (Rj, Rm) = N = 5 = 0.101

Cov(Rm Rj) 0.101

Beta Coefficient (β) = Variance (R ) = 0.1009 = 1.00
m
Required Rate of Return, (Ki) = Rf + {Rm- Rf} × β = 3.5 + (31.89-3.5) × 1.00 =
31.32
ii. Calculation of Actual Rate of Return and Required Rate of Return of NABIL
Closing Cash _ _ _ _
Year R
j R -R R -R (R -R )(R -R )
Price Dividend m m j j m m j j
2060/61 1000
2061/62 1505 70 0.575 -0.0279 0.0929 -0.0026
2062/63 2240 85 0.5449 0.0305 0.0627 0.0019
2063/64 5050 100 1.2991 0.4492 0.8170 0.3669
2064/65 5275 60 0.0564 0.0896 -0.4257 -0.0381
2065/66 4899 35 -0.0646 -0.5413 -0.5468 0.2960
_ _
R =2.4107
j (R -R )(R -R ) = 0.6241
m m j j
Where,

93
 Ending Price - Beginning Price + Cash Dividend
Rj = Beginning Price

__ Rj 2.4107
Average Actual Rate of Return ( R j) = N = 5 = 0.4821= 48.21 %

__ __
[(Rj- R j) (Rm- R m)] 0.0.6241
Co-Variance, Cov (Rj, Rm) = N = 5 = 0.1248

Cov(Rm Rj) 0.1248

Beta Coefficient (β) = Variance (R ) = 0.1009 = 1.24
m
Required Rate of Return, (Ki) = Rf + {Rm- Rf} × β = 3.5 + (31.89-3.5) × 1.24 =
38.70

iii. Calculation of Actual Rate of Return and Required Rate of Return of HBL
Closing Cash _ _ _ _
Year R
j R -R R -R (R -R )(R -R )
Price Dividend m m j j m m j j
2060/61 840
2061/62 920 11.58 0.1090 -0.0279 -0.0880 0.0025
2062/63 1100 30 0.2283 0.0305 0.0312 0.0010
2063/64 1760 15 0.6136 0.4492 0.4166 0.1871
2064/65 1980 25 0.1392 0.0896 -0.0578 -0.0052
2065/66 1760 12 -0.1051 -0.5413 -0.3021 0.1635
_ _
R =0.9851
j (R -R )(R -R ) = 0.3489
m m j j

Where,
Ending Price - Beginning Price + Cash Dividend
Rj = Beginning Price

__ Rj 0.9851
Average Actual Rate of Return ( R j) = N = 5 = 0.1970 = 19.70 %

__ __
[(Rj- R j) (Rm- R m)] 0.3489
Co-Variance, Cov (Rj, Rm) = N = 5 = 0.0698

94
 Cov(Rm Rj) 0.0698
Beta Coefficient (β) = Variance (R ) = 0.1009 = 0.69
m

Required Rate of Return, (Ki) = Rf + {Rm- Rf} × β = 3.5 + (31.89-3.5) × 0.69 =

23.09

iv. Calculation of Actual Rate of Return and Required Rate of Return of EBL
Closing Cash _ _ _ _
Year R
j R -R R -R (R -R )(R -R )
Price Dividend m m j j m m j j
2060/61 680
2061/62 870 - 0.2794 -0.0279 -0.0712 0.0020
2062/63 1379 25 0.6138 0.0305 0.2632 0.0080
2063/64 2430 10 0.7694 0.4492 0.4188 0.1881
2064/65 3132 20 0.2971 0.0896 -0.0535 -0.0048
2065/66 2455 30 -0.2066 -0.5413 -0.5572 0.3016
_ _
R =1.7531
j (R -R )(R -R ) = 0.4949
m m j j

Where,
Ending Price - Beginning Price + Cash Dividend
Rj = Beginning Price

__ Rj 1.7531
Average Actual Rate of Return ( R j) = N = 5 = 0.3506 = 35.06 %

__ __
[(Rj- R j) (Rm- R m)] 0.4949
Co-Variance, Cov (Rj, Rm) = N = 5 = 0.0990

Cov(Rm Rj) 0.0990

Beta Coefficient (β) = Variance (R ) = 0.1009 = 0.98
m

Required Rate of Return, (Ki) = Rf + {Rm- Rf} × β = 3.5 + (31.89-3.5) × 0.98 =

31.32

95
v. Calculation of Actual Rate of Return and Required Rate of Return of SBI
Closing Cash _ _ _ _
Year R
Price Dividend j R -R R -R (R -R )(R -R )
m m j j m m j j
2060/61 307
2061/62 335 - 0.0912 -0.0279 -0.3926 0.0109
2062/63 612 5 0.8418 0.0305 0.3580 0.0109
2063/64 1176 12.59 0.9421 0.4492 0.4584 0.2059
2064/65 1511 - 0.2849 0.0896 -0.1989 -0.0178
2065/66 1900 2.11 0.2588 -0.5413 -0.2249 0.1218
_ _
R =2.4188
j (R -R )(R -R ) = 0.3317
m m j j

Where,
Ending Price - Beginning Price + Cash Dividend
Rj = Beginning Price

__ Rj 2.4188
Average Actual Rate of Return ( R j) = N = 5 = 0.4838 = 48.38 %

__ __
[(Rj- R j) (Rm- R m)] 0.3317
Co-Variance, Cov (Rj, Rm) = N = 5 = 0.0663

Cov(Rm Rj) 0.0663

Beta Coefficient (β) = Variance (R ) = 0.1009 = 0.65
m
Required Rate of Return, (Ki) = Rf + {Rm- Rf} × β = 3.5 + (31.89-3.5) × 0.65 =
21.95

96
 Appendix- 8
Pro- forma of Structured Questionnaire
A survey of share price movement in Commercials Banks
Name:……………………………..
Position:……………………………………..
Institution……………………………………

1. Have you ever hold the shares from the primary market?
Yes No
I. If yes, what are the reasons for holding the share?
a. Social status
b. For dividend
c. For capital gain
d. Please, Specify if any others
II. If not, what may be the reasons for not holding share?
a. Unaware of receiving dividend
b. Unaware about the procedures of share application
c. Over fluctuation of share price
d. Please, Specify if any others

2. Do you agree that there is volatility in share price?

Yes No
I. If yes, what are the major factors for share volatility?
a. Distribution of dividend
b. Signaling factors
c. Political instability
d. Please, Specify if any others

3. Do you know that future share price can be predicted?

Yes No
I. If yes, what are the major factors that help to predict its market price?
a. Historical price
b. Market analysis
c. Financial Data
d. Please, Specify if any others

97
4. Is there any measure to increase net profit?
Yes No
I. If yes, what could be the measure to increase net profit?
a. High deposit collection
b. Deduction in Expenditures
c. High margin in the rate of interest among deposit and loan issue
d. Please, Specify if any others

5. Do you know that the share price gets decreased?

Yes No
I. If yes, what are the reasons why to share price are increased?
a. Political instability
b. Delay in trading mechanism
c. High Interest on loan
d. Please, Specify if any others

6. Do you know that Company distributes dividend?

Yes No
I. If yes, what are the reasons for dividend distribution?
a. High Profit
b. To attract Investors
c. To increase DPS
d. Please, Specify if any others

7. Have you ever invested your money in secondary market?

Yes No
I. If yes, what factors play the major role in the decision making before its investment?
a. Current market price
b. Expert advice
c. Own analysis
d. Please, Specify if any others
II. If not, what may be the reasons for not investing in secondary market?
a. Unaware about procedures of secondary market
b. Delay procedures of secondary market
c. For achievement of benefits
d. Please, Specify if any others

98