Dividend Policy of Kumari Bank Limited

1.1.
Background of the study
Every firm after making profit either retain the money for further investment or
distribute it among the shareholders. The profit made by the firm, which is distributed
to the shareholders is termed as dividend. The firm should decide whether to keep the
money as retained earning or pay the dividend. The dividend policy is the policy
followed by the firm regarding the dividend versus retention decision.
In simple words, dividend refers to a portion of earning, which is distributed to

shareholders in return of their investment in share capital. In other word, the process
of paying at “what’s left” to shareholders is called dividend policy. Dividend policy of
a firm is one of the third major decision making areas of financial management. It is
regarded as a tool to determine the appropriate allocation of profits between dividend
payments and the amount to be retained in the firm. It deals with how much should
pay to shareholders from the earnings. Dividend payout reduces the amount of
earnings retained in the business, which affects the internal financing of the firm.
Since the dividend policy affects financial structure, the flow of funds, corporate
liquidity and investor's attitude, it is related to overall financing decision as dividend
payout reduces the amount of retained earnings that are paid to shareholders in return
to their investment.
Dividends are generally paid in cash because it is easy to pay. Dividend is always a
controversial concern. Thus, in order to strike a balance between paying dividend and
retained earnings, it is necessary for the firm to adopt and effective and relevant
dividend policy. The firm's directors periodically meet in order to decide whether to
pay dividend and to determine the amount and form of dividend payment. Dividend
policy means some kind of consistent approach to the distribution versus retention
decisions. Dividend policy determines the amount of earnings to be retained and
payout by the firm. Various questions related to the payment of dividend or retain
earnings are contained in the dividend policy. The dividend policy adopted by the firm
should be such that is strikes the proper balance between the financing "decision and
wealth maximization decisions.
1
1.2. Statement of problem
Dividend, the most inspiring factor for the investment on shares of the corporation, is
an important aspect of financial management; because the dividend policy determines
the division of earning between payment to stockholders and reinvestment in the firm
to exploit growth opportunities. It affects the value of the firm as well as overall
financing decision such as financial structure, the flow of funds, corporate liquidity
and investor’s satisfaction. Dividend decision is a crucial as well as controversial area
of managerial finance. Corporate dividend policy is not clearly understood by a large
segment of the financial community. The statement of problem of this study are:
2.
1. What is the dividend policy of Kumari Bank Limited ?

2. What is the position of Nepal telecom in terms of earning per share,
dividend per share, market value per share and book value per share?
2.1. Objectives of the study

This study is primarily undertaken to focus on the prevalent policies and practices of
Kumari Bank Limited with a view to suggest some appropriate dividend strategy
and direction of future endeavors for the share of market and also the possible impact
of such endeavors in share market in Nepal. In this regard, the specific objectives of
the study are:
1. To analyze the divided policy of Nepal Telecom.

2. To analyze the earning per share, dividend per share, market value per
share and book value per share of Kumari Bank Limited
2.2. Literature review

Bhattarai carried out the task of analyzing the dividend decision and its impact on
stock valuation on 2010 using ten companies of various sectors. The basic objectives
of the study to identify the relationship between dividend and stock price.The main
objectives of his thesis was as follows:
 To highlight various aspects of dividend policies and practices in Nepal.
 To analyze the variables such as profit dividends, to show the relationship
between the value, and other ingredient affecting it.
 To provide feedback to the policy makers and executive and executive working in
various companies chosen for study based on the findings of the analysis.
After analyzing the above mentioned points, he concluded the following factors:
 The companies while paying dividend generally neglect shareholder’s expectation.
2
 There were no criterion to adopt payout ratio and it is observed that there is a
negative relationship between payout ratio and valuation of shares.
 In aggregate, there is not stable dividend paid by the companies over the years i.e.
instability of dividend.
 Market price considerably higher than actual net worth.
 There is a negative relationship between market price of a shares and
stockholder’s required rate of return. Shareholder’s have foregone company’s
opportunity income in hope of getting higher return, but companies have not
been able to getting higher, return, but companies have not been able to return
even actual to risk free rate of return.
 There is positive relationship observed on foreign investment and payment of
dividend i.e. the companies invested by the foreign investor are paying regular
dividends than the companies dominantly invested by Nepalese. There is
negative relationship observed between the companies paying dividend and
percentage of public shareholders and percentage of public shareholders and
percentage of shares hold by HMG/N.
Timilsina (2012) in his thesis paper, “Dividend and Stock Price; An empirical study”
has studied the relationship between dividend and stock price by taking the data often
enterprises from 2007 to 2012. Though it was not comprehensive it was the first of its
kind and able to throw some light in the Nepalese context. One of the major
objectives of the study was to know about the influence in price caused by dividend
policy of the firm. So the study used simultaneously equation model as developed by
Friend and Pucket (1964) to explain the price behavior.
The specific objectives of his study were as follows:
 To test the relationship between dividend per share and stock price.
 To determine the impact of dividend policy on stock price.
 To identify whether it is possible to increase the market value of stock by
changing dividend policy or payout ratio.
The main findings of his study were as follows:

 The relationship between dividend per share and stock price is positive in the
sample companies.
 DPS affects the share price differently in difference sectors.
 By changing the dividend policy or DPS might help to increase the MPS.
 The relationship between stock prices and retained earnings per share is not
important.
3
 The relationship between stock price and lagged earnings price ratio is
negative.
Poudel ( 2013) A study “Dividend Policy, A case study of different listed finance
companies” conducted by Rabindra Poudel has concluded the following factors:
 Dividend practices of all the sample companies are neither stable or not
constantly growing: moreover haphazard way is ad opining but in growing
trend.
 Relationship between DPS and EPS, NPAT and NW are positively in all these
finance companies where as relationship between DPS
Actually, commercial banks are financial institution. It provides these kinds of

services, which are different from other banks like development of agriculture . So in
commercial banks there should be unique policy and strategy. This study differs from
the previous studies because it tries to analyze the capital market explaining whether
the capital market is efficient or inefficient which is not cover by previous studies.
1.6. Research Design

A researcher must have a clear understanding of the various types of research design
to select which type of research design to implement for a study. Research design can
be broadly classified into quantitative and qualitative research design. This study is
related to the dividend policy and its impact on the share price and wealth position of
the shareholders. Therefore, the descriptive as well as the analytical approach and
correlation are adopted here
1.6.1. Nature and source of data

Both primary and secondary data will be taken for the study. This study will be
mainly based on secondary source of data i.e. annual report of Kumari Bank Limited
collected from the websites of the Bank.
1.6.2. Technique for analysis of data
Financial ratio analysis is used as technique to quantify the relationship between two
or major sets of financial data from income statement and balance sheet. It provides
the information about strengths and weakness of a financial data in relation to others.
4
1.7 Limitations of the Study
As the title specified the study is mainly concerned with dividend policy Kumari
Bank Limited. This study has following limitations:
 This study covers three financial years i.e 2013/14 to 2017/18
 This study is based on secondary data.
 This study is limited to Kumari Bank Limited Only.

1.6 Organization of the Study
This research has been organized in three chapters as below:
Chapter I: Introduction:
The first chapter deals with introduction. This includes background, statement of
problem, objectives of the study, significance of the study, limitation of the study.
Chapter II: Results And Analysis
The data collected will be analyzed using different financial as well as statistical tools
and results will be presented at the end of the chapter.
Chapter III: Summary and conclusion
The third and final chapter will be summary and conclusion of the study. This
chapter will present the entire summary of the study and concludes the study
Bibliography
Agrawal, N.P.(1981). Analysis of financial statement. New Delhi: National Publishing

House.
Kothari, C.R. (1989). Research methodology, methods & techniques. New York: N.D.
Willey Eastery Ltd.
Koirala, B.H. (2012). Revenue Planning and Its Impact on Profitable Operation of
NSBl Ltd. An Unpublished Thesis, Submitted to Faculty of Tribhuwan
University. Biratnagar
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Lamichhane, S.K (2013). Revenue Management and Its Impact on Profitability
of Kumari Bank Limited. An Unpublished Thesis, Submitted to Faculty
of Management, Kathmandu
Pandey, I. M. (1992). Financial Management. New Delhi: Vikas

Publishing House Pvt. Ltd.
Pant, P.R. (2003). Business Environment in Nepal, 2/e. Kathmandu:

Buddha Academic Enterprises Pvt. Ltd.

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1.1.

Background of the study

In simple words, dividend refers to a portion of earning, which is distributed to

1. What is the dividend policy of Kumari Bank Limited ?

2.1. Objectives of the study

1. To analyze the divided policy of Nepal Telecom.

2.2. Literature review

The main findings of his study were as follows:

Actually, commercial banks are financial institution. It provides these kinds of

1.6. Research Design

1.6.1. Nature and source of data

1.6.2. Technique for analysis of data

Agrawal, N.P.(1981). Analysis of financial statement. New Delhi: National Publishing

Pandey, I. M. (1992). Financial Management. New Delhi: Vikas

Pant, P.R. (2003). Business Environment in Nepal, 2/e. Kathmandu:

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