Some problems in dividends decisions

Miller and Modigliani (1961) have given a theory stating that the shareholders should be indifferent between amount distributed and retained in the firm. However, in practice, the assumption of capital market perfection does not exist that lead to the situation where dividend policy is relevant. The idea of relevance is vague as well.it is rather hard to define whether dividend per share has positive effect or its effect is negative one.

It is found that there is no satisfactory result about dividend decision of commercial banks in Nepal. Likewise, dividend distribution does not match with the earning of the commercial banks, there does not exist a proper relationship between dividend and quoted market price of share. Similarly, commercial banks with lower returns record stable price of share and banks making sound returns do not stable in share price.

It is because, among the various reasons, the government rules and regulations, ownership patterns, attitudes of management, forms of management may be the partial causes of such a situation. In practice, every firm follows some kinds of dividend policy and there is no unique dividend policy which is appropriate for all firms. So they follow different policies. In general, it is assumed that there is relationship between dividend and stock price but dividend and stock prices established by much finance scholars need to be tested in the context of Nepal.

Dividend is the motivating factor for the investor. But Nepalese commercial Bank has no satisfactory result on dividend decision. The dividend decisions are affecting by government rules and regulations.

• What is the dividend, earnings, payout ratio, price earnings multiple and market price of common stock of commercial banks in Nepal?
• Is there any relationship between dividend decision and market price per share?
• Whether dividends have impact on market price of stock?