FUNDAMENTALS OF COMMON STOCK PRICING: EVIDENCE FROM COMMERCIAL BANKS OF NEPAL

This study relates cross-sectional differences in stock prices of Nepalese commercial banks to the underlying behavior of six fundamental variables: earnings per share, book value per share, cash dividend per share, stock dividend per share, price earnings ratio, and firm size. This study uses secondary sources of data. The balanced panel data from commercial banks including 150 observations are used for the period of 2000-2014. The earnings per share and stock dividend per share are the more significant determinants of stock prices of commercial banks in Nepal. The performance of the stock dividend is especially noteworthy; this variable is statistically and economically the most important of the six fundamental variables investigated. The findings have important implications to formulate the policy in managing stock market of Nepal and in other managerial decisions like making investment strategies, restructuring and development. Though the study is based on commercial banks but many of the analytical methods and approaches used can undoubtedly be of great use to other sectors of listed companies in Nepalese stock market. Thus, among all the variables, earnings per share and stock dividend per share are found to be the best predictors because coefficients are statistically and economically significant across all the specifications.