Leverage, Dividend Policy, Profitability and Market Value Relationships: A Case of Nepalese Commercial Banks
This study examines the relationship among leverage, dividend policy, profitability and market value in the context of Nepalese commercial banks. The dependent variables are value of commercial banks defined in terms of dividend per share and market price per share. The independent variables are earnings per share, price earnings ratio, book value per share, return on assets, debt to equity, size and taxes are taken as independent variables. The data are collected from various issues of Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank and annual reports of selected commercial banks. The study is based on 14 commercial banks of Nepal for the period of 2003 to 2014 leading to the total of 168 observations. The regression models are estimated to test the significance and importance of effect of leverage, dividend policy and profitability on value of Nepalese commercial banks. The result shows positive relationship of dividend per share with bank size, earning per share, financial leverage. This means that increase in bank size, earning per share and financial leverage lead to increase in dividend per share. Likewise, the results also shows that there is positive relationship of dividend per share with reserve and surplus, return on assets and tax liabilities indicating that higher the reserve, return on assets and tax liabilities, higher would be the dividend per share. Similarly, market price per share is positively related to earning per share, reserve and financial leverage. It indicates that increase in dividend per share, earning per share, reserve and financial leverage leads to increase in the market price per share. The beta coefficients are significant for size and reserve with dividend per share. Likewise, the beta coefficient is significant for leverage with market price per share.