The Impact of Growth Prospect, Size and Leverage on Dividend Behavior of Nepalese Commercial Banks

Abstract

This study examines the impact of growth prospect, leverage and firm size on dividend behavior of Nepalese commercial banks.The dividend variables selected in the study are calculated in terms of dividend per share (DPS), dividend yield (DVY) and dividend payout ratio (DPY). The major independent variables taken are size, leverage and growth prospects while for robustness, other variables are also taken which are profitability, lagged dividends, bank risk and inflation. The data are collected from annual reports of selected commercial banks and bank supervision reports published by Nepal Rastra Bank while the data for inflation has been extracted from the World Bank reports.The study is based on 146 observations from 19 commercial banks in Nepal from 2006-2014. The regression models are estimated to test the significance and importance of dividend patterns in Nepalese commercial banks. The result shows that there is a positive relationship of dividend payouts with size, profitability and lagged dividends. It implies that higher the values of size, profitability and lagged dividends, higher would be the dividend payouts of Nepalese commercial banks. In contrast, growth prospect, leverage and P/E ratio have a negative impact on the dividend patterns. It reveals that an increase in the growth prospect, leverage and P/E ratio leads to lower dividend payments of the Nepalese commercial banks. The beta coefficient is positively significant for size, profitability and lagged dividends whereas the beta coefficient is negatively significant for growth prospect, leverage and P/E ratio. The study also concludes that the dividend behavior of Nepalese commercial banks follow the Lintner model of dividend payments.