Effect of Firm Specific and Macroeconomic Variables on Share Price Determination of Commercial Banks in Nepal

Abstract

This paper examines the effect of firm specific and macro-economic variable on share price determination of commercial banks in Nepal over a period from 2009/10 to 2015/16. Share price (market price and stock return) is dependent variable whereas, firm size, return on assets, earning per share, dividend per share, gross domestic product, interest rate , and inflation rate are independent variables. Data are collected from annual report of the respective banks, NRB website, NEPSE, and SEBON. The study is based on 105 observation from 15 commercial banks of Nepal. The regression models are estimated to test the significant and importance of effect of firm specific and macroeconomic variable on share price determinant of Nepalese commercial banks. The result shows that there is positive correlation between market price of share with firm size, earning per share, return on assets, dividend per share, gross domestic, product, inflation whereas, negatively correlated to interest rate. Similarly, stock return is positively related to firm size, earning per share dividend per share, gross domestic product, and inflation, whereas negatively relate to return on assets, inflation, and interest rate. The result shows that beta coefficient for earning per share, dividend per share, gross domestic product, and inflation on market price of share whereas, negative for firm size, return on assets and interest rate. Likewise, beta coefficient is positive for dividend per share, earning per share, gross domestic product, and interest rate whereas, negative for firm size, return on assets, and inflation.