Effect of interest rate on the performance of Nepalese commercial banks / Sushmita Amatya 

Public ISBD Title : Effect of interest rate on the performance of Nepalese commercial banks Material Type: printed text Authors: Sushmita Amatya, Author Publication Date: 2016 Pagination: 65p. Size: GRP/Thesis Accompanying material: 4/B General note: Including bibilography Languages : English Descriptors: Bank and banking Bank loans Interest rate Keywords: 'interest rate  deposit rate  inflation rate  return on assets  return on equity' Class number: 332.820 Abstract: Banks specialize in assessing the credit worthiness of borrowers and providing an ongoing monitoring function to ensure borrowers meet their obligations. Business and other financial institutions are in the market to settle day-to-day transactions (Vohra and Sehgal 2012). By almost any measure, the commercial bank is the most important financial intermediary serving the public today. They offer more services than the majority of other financial Institutions, which include expanding the money supply by granting credits (loans) to borrowers. Interest rate directly affects the lending of the any financial institutions (Felicia, 2011). Lending behavior of the bank can be defined as the preferences and choices of bank while making loans and advances. Bank lending behavior is the selection of bank’s investment on loans and advances on the account of constraints given by regulators, opportunities or threats provided by macroeconomic, factors and the preferences of customers (Musleh, 2007). Nepalese economy is under the crucial transformation through changes in bothintersectoral importance and linkages. The composition of GDP has changed with servicesector emerging as nearly the largest sector, trade-GDP ratio has increased, and foreignexchange regime has been liberalized. banking sector is facing with the danger of liquidity crisis, inflated interest rate, declining deposits and the problem of the liquidity started which has affected the inter banking interest rate (Shrestha, 2011). In spite of higher interest rate provided by commercial bank in the deposits, it still fails to attract the depositors. growing competition in the financial sector, recent increase in transaction of security and capital markets as well as the taxation laid on higher deposits in banks are, among others, the factors affecting bank's profitability. The impact of market interest rates on commercial bank revenues, costs, and profitability has increasingly concerned economists and policymakers as financial market conditions have become more volatile in recent years (Shahi, 2008). This study has aimed to examine effect of interest rate on banking performance in Nepalese commercial banks. Specifically, it examines the effect on bank rate, deposit rate, loan rate, inflation rate and non performing loan to return on assets and return on equity of commercial banks of Nepal. This study has used secondary sources of data to analyze the impact of interest rate structure on bank performance. The secondary sources of data have been used to investigate the relationship of interest rate and banking performance. The secondary data for bank performance and interest rate have been taken from annual report of the commercial bank for the year2009/10 to 2013/14. Total of 21 sample banks have been taken with 105 observations from the five year period. This study has used descriptive statistics, and correlation analysis, stepwise regressions have been carried out to examine the secondary data. This result has found that return on assets is positively related to loan rate, bank rate, capital adequacy, and non performing loan while negatively related to deposit rate and the inflation. ROE is positively related with loan rate, capital adequacy and the inflation rate. While negative relation is observed with bank rate, deposit rate and non performing loan.Beta coefficient is positive for loan rate with return on assets (ROA) which indicates that increase in loan rate increases the return on assets.The beta coefficient for capital adequacy is positive with ROA indicating banks with higher capital adequacy can increases its return on assets, but it is not significant at five percent level. The results also revealed that beta coefficient for deposit rate is negative with return on assets and is significant at five percent. This indicates that increases in deposit rate leads to decrease in return on assets.Beta coefficient is negative for bank rate with return on assets indicating increased bank rate decreases the return on assets of the banks.Result also revealed that beta coefficient is negative for non performing loan with return on assets and is significant at one and five percent level. This result reveals that if bank became able to decreases its volume of nonperforming loan, can increase bank performance as measured by return on assets (ROA). The study concludes that bank can increase its profitability if bank can manage its interest rates. If bankisable to increase loan rate, bank can improve bank performance in the coming year. This study also concludes that non performing loan is also positively related to interest rate or loan rate in the bank. Nonperforming loan is also positively related to interest rate, higher interest rates may reduce the tendency to repay the loan because of the higher cost of loan, banks can reduce the interest amount from the customer so that they would be willing to repay the loan in time. This study suggests that banks willing to increase bank performance should properly assess the cause of decrease in return on assets, and should have remedies as earlier as possible. Effect of interest rate on the performance of Nepalese commercial banks [printed text] / Sushmita Amatya, Author . - 2016 . - 65p. ; GRP/Thesis + 4/B. Including bibilography Languages : English Descriptors: Bank and banking Bank loans Interest rate Keywords: 'interest rate  deposit rate  inflation rate  return on assets  return on equity' Class number: 332.820 Abstract: Banks specialize in assessing the credit worthiness of borrowers and providing an ongoing monitoring function to ensure borrowers meet their obligations. Business and other financial institutions are in the market to settle day-to-day transactions (Vohra and Sehgal 2012). By almost any measure, the commercial bank is the most important financial intermediary serving the public today. They offer more services than the majority of other financial Institutions, which include expanding the money supply by granting credits (loans) to borrowers. Interest rate directly affects the lending of the any financial institutions (Felicia, 2011). Lending behavior of the bank can be defined as the preferences and choices of bank while making loans and advances. Bank lending behavior is the selection of bank’s investment on loans and advances on the account of constraints given by regulators, opportunities or threats provided by macroeconomic, factors and the preferences of customers (Musleh, 2007). Nepalese economy is under the crucial transformation through changes in bothintersectoral importance and linkages. The composition of GDP has changed with servicesector emerging as nearly the largest sector, trade-GDP ratio has increased, and foreignexchange regime has been liberalized. banking sector is facing with the danger of liquidity crisis, inflated interest rate, declining deposits and the problem of the liquidity started which has affected the inter banking interest rate (Shrestha, 2011). In spite of higher interest rate provided by commercial bank in the deposits, it still fails to attract the depositors. growing competition in the financial sector, recent increase in transaction of security and capital markets as well as the taxation laid on higher deposits in banks are, among others, the factors affecting bank's profitability. The impact of market interest rates on commercial bank revenues, costs, and profitability has increasingly concerned economists and policymakers as financial market conditions have become more volatile in recent years (Shahi, 2008). This study has aimed to examine effect of interest rate on banking performance in Nepalese commercial banks. Specifically, it examines the effect on bank rate, deposit rate, loan rate, inflation rate and non performing loan to return on assets and return on equity of commercial banks of Nepal. This study has used secondary sources of data to analyze the impact of interest rate structure on bank performance. The secondary sources of data have been used to investigate the relationship of interest rate and banking performance. The secondary data for bank performance and interest rate have been taken from annual report of the commercial bank for the year2009/10 to 2013/14. Total of 21 sample banks have been taken with 105 observations from the five year period. This study has used descriptive statistics, and correlation analysis, stepwise regressions have been carried out to examine the secondary data. This result has found that return on assets is positively related to loan rate, bank rate, capital adequacy, and non performing loan while negatively related to deposit rate and the inflation. ROE is positively related with loan rate, capital adequacy and the inflation rate. While negative relation is observed with bank rate, deposit rate and non performing loan.Beta coefficient is positive for loan rate with return on assets (ROA) which indicates that increase in loan rate increases the return on assets.The beta coefficient for capital adequacy is positive with ROA indicating banks with higher capital adequacy can increases its return on assets, but it is not significant at five percent level. The results also revealed that beta coefficient for deposit rate is negative with return on assets and is significant at five percent. This indicates that increases in deposit rate leads to decrease in return on assets.Beta coefficient is negative for bank rate with return on assets indicating increased bank rate decreases the return on assets of the banks.Result also revealed that beta coefficient is negative for non performing loan with return on assets and is significant at one and five percent level. This result reveals that if bank became able to decreases its volume of nonperforming loan, can increase bank performance as measured by return on assets (ROA). The study concludes that bank can increase its profitability if bank can manage its interest rates. If bankisable to increase loan rate, bank can improve bank performance in the coming year. This study also concludes that non performing loan is also positively related to interest rate or loan rate in the bank. Nonperforming loan is also positively related to interest rate, higher interest rates may reduce the tendency to repay the loan because of the higher cost of loan, banks can reduce the interest amount from the customer so that they would be willing to repay the loan in time. This study suggests that banks willing to increase bank performance should properly assess the cause of decrease in return on assets, and should have remedies as earlier as possible.

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Effect of leverage, dividend policy and profitability on value of Nepalese commecial banks / Shraddha Shrestha 

Public ISBD Title : Effect of leverage, dividend policy and profitability on value of Nepalese commecial banks Material Type: printed text Authors: Shraddha Shrestha, Author Publication Date: 2016 Pagination: 80p. Size: GRP/Thesis Accompanying material: 5/B General note: Including Bibilography Languages : English Descriptors: Banks Banks and banking Dividend policy Dividends Keywords: 'dividend policy  banking  dividends  return on assets  return on equity' Class number: 332.1 Abstract: Leverage, dividend policy and profitability is very important for both bank and country. It ensures the value of commercial bank. If bank fails to balance it in a proper way, it will significantly affect the bank and indirectly affect the country as well. The main purpose of this research is to analyze the effect of leverage, dividend policy and profitability on value of Nepalese commercial banks. This research had tried to investigate the internal (bank specific) that will affect decisions of dividend policy and value of firms. A total of 14 commercial banks are chosen to represent the Nepalese commercial banks during period form 2002/03 to 2013/14. The independent variables for this research are earnings per share, price earnings ratio, book value per share, return on assets, debt to equity, size and tax.For analysis of data descriptive statistics, correlation, and regression analysis among the dependent and independent is used.This study is based on secondary data and data are collected from the annual reports of the individual bank, Nepal Rastra Bank BFIs statistics, and audited balance sheet of respective bank, published journals and books. The correlation analysis shows that the dependent variable, market price of share is positively related to earnings per share, dividend per share, price earnings ratio, book value per share, return on assets and size, debt equity ratio, reserve and tax payable. However, the result shows that there is only significant positive relationship of earning per share and dividend per share, return on assets, size, reserve and tax with market price per share. The linear regression model is used to examine the relationship between dependent variable, dividend per share, market price per share and independent variables, firm specific. Among the firm specific variables, return on assets, size, earning per share, book value per share and debt to equity with dividend per share,size, earning per share and reserve shows the significant positive relationship with dividend per share. The regression of firm specific variables on market price per share shows that the beta coefficients are positive and significant for earning per share, return on assets, dividend per share, size and tax. Likewise, the beta coefficient of P/E ratio is also found to be positive and but not significant. The study shows that dividend per share is positively related with market per share and relationship is significant, which also supports the priori hypothesis of positive relationship with value of firms. The positive relationship with market value of firms indicates that increase in dividend per share leads to increase in market price per share. Return on assets, size and tax has also has significant relationship with market price per share. The positive coefficient of return on assets, size and tax to market price per share indicates increasing return on assets, size and tax contributes to increase in value of commercial banks which also support the prior hypothesis. Effect of leverage, dividend policy and profitability on value of Nepalese commecial banks [printed text] / Shraddha Shrestha, Author . - 2016 . - 80p. ; GRP/Thesis + 5/B. Including Bibilography Languages : English Descriptors: Banks Banks and banking Dividend policy Dividends Keywords: 'dividend policy  banking  dividends  return on assets  return on equity' Class number: 332.1 Abstract: Leverage, dividend policy and profitability is very important for both bank and country. It ensures the value of commercial bank. If bank fails to balance it in a proper way, it will significantly affect the bank and indirectly affect the country as well. The main purpose of this research is to analyze the effect of leverage, dividend policy and profitability on value of Nepalese commercial banks. This research had tried to investigate the internal (bank specific) that will affect decisions of dividend policy and value of firms. A total of 14 commercial banks are chosen to represent the Nepalese commercial banks during period form 2002/03 to 2013/14. The independent variables for this research are earnings per share, price earnings ratio, book value per share, return on assets, debt to equity, size and tax.For analysis of data descriptive statistics, correlation, and regression analysis among the dependent and independent is used.This study is based on secondary data and data are collected from the annual reports of the individual bank, Nepal Rastra Bank BFIs statistics, and audited balance sheet of respective bank, published journals and books. The correlation analysis shows that the dependent variable, market price of share is positively related to earnings per share, dividend per share, price earnings ratio, book value per share, return on assets and size, debt equity ratio, reserve and tax payable. However, the result shows that there is only significant positive relationship of earning per share and dividend per share, return on assets, size, reserve and tax with market price per share. The linear regression model is used to examine the relationship between dependent variable, dividend per share, market price per share and independent variables, firm specific. Among the firm specific variables, return on assets, size, earning per share, book value per share and debt to equity with dividend per share,size, earning per share and reserve shows the significant positive relationship with dividend per share. The regression of firm specific variables on market price per share shows that the beta coefficients are positive and significant for earning per share, return on assets, dividend per share, size and tax. Likewise, the beta coefficient of P/E ratio is also found to be positive and but not significant. The study shows that dividend per share is positively related with market per share and relationship is significant, which also supports the priori hypothesis of positive relationship with value of firms. The positive relationship with market value of firms indicates that increase in dividend per share leads to increase in market price per share. Return on assets, size and tax has also has significant relationship with market price per share. The positive coefficient of return on assets, size and tax to market price per share indicates increasing return on assets, size and tax contributes to increase in value of commercial banks which also support the prior hypothesis.

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Factors influencing the interest setting behaviour of Nepalese commercial banks / Bikash Yadav 

Public ISBD Title : Factors influencing the interest setting behaviour of Nepalese commercial banks Material Type: printed text Authors: Bikash Yadav, Author Publication Date: 2018 Pagination: 98p. Size: GRP/Thesis Accompanying material: 11/B Languages : English Descriptors: Bank and banking Banks Investors Keywords: 'interest rate  deposit rate  inflation rate  return on assets  return on equity' Class number: 332.6 Abstract: The interest setting behavior is treated as an important indicator of intermediation efficiency. Banks’ interest rate represents a vital component of profitability and typified a summary measure of bank net interest rate of return. Interest rates are of significant importance for efficient mobilization of resources for economic and productive activities. In the economy market, the interest setting behavior is significantly influenced by a number of factors which include macroeconomic environment, inflation and the policy interest rate (Treasury bill rate). Higher interest rate usually implies lower baking sector efficiency, marked by higher costs due to inefficient control of operating expenses, and have a negative impact of financial developments, resulting with lower investments and slower economic activity. The major purpose of this study is to identify the firm-specific and macroeconomic factors influencing the interest setting behavior of Nepalese commercial banks. The study has the following specific objectives is to analyze the impact of assets growth ratio, efficiency ratio and capital adequacy ratio in determining the interest rate, to determine the impact of return on assets on interest setting behavior and to examine the relationship between macro-economic factors such as GDP growth and inflation on interest setting behavior. This study is based on secondary data which were gathering for a sample of 18 commercial banks of Nepal within the time period from 2010 to 2016, leading to total of 126 observations. The secondary data have been obtained from Nepal Rastra Bank bulletin published by central bank of Nepal, annual audited financial statements and websites of respective commercial banks. The polled cross-sectional data analysis has been undertaken in the study. The research design adopted in this study is casual comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, credit risk, management efficiency, liquidity position, return on assets and growth and macro-economic variables like GDP growth and inflation with dependent variable such as: I1 (interest on deposit) and I2 (interest on loan). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis. The result shows thatcapital adequacy ratio has negative relation to I1 (interest on deposit) and I2 (interest on loan). The beta coefficient of credit risk is positive and highly significant. Efficiency ratio has negative relation with interest rate. The beta coefficient of liquidity ratio is negative for I1 (interest on deposit) and positive for I2 (interest on loan). Return on assets has positive relationship with interest on deposit. The beta coefficient of return on assets is large and highly significant. In the contrast return on assets has negative relationship with interest on loan. The beta coefficient of assets growth ratio is large and highly significant. GDP growth has negative and insignificant relation with interest on deposit whereas positive and significant relation with interest on loan. The beta coefficient of inflation is small and highly insignificant for interest on deposit and significant for interest on loan. The major conclusion of this study is thatinterest rateof Nepalese commercial banks is affected by bank-specific factors and macroeconomic factors. Credit risk and return on assets is an internal factor which holds a definitely significant positive effect on interest on deposit where as capital adequacy ratio, efficiency ratio, liquidity ratio, assets growth ratio, GDP growth rate and inflation is an internal factor which holds significant negative effect on interest on deposit. Credit risk, liquidity ratio, GDP growth rate and inflation is an internal factor which holds a definitely significant positive effect on interest on loan where as capital adequacy ratio, efficiency ratio, return on assets and assets growth ratio is an internal factor which holds significant negative effect on interest on loan. The study also concludes that there are behaviors towards the commercial banks in Nepal, which always expects to maintain a stable interest rate at a certain level in the long term. Thus, the high interest rate is not defined as the low level of efficiency of Nepalese commercial banks, but rather reflects the high asymmetric information and the high level of profitability of the bank. Factors influencing the interest setting behaviour of Nepalese commercial banks [printed text] / Bikash Yadav, Author . - 2018 . - 98p. ; GRP/Thesis + 11/B. Languages : English Descriptors: Bank and banking Banks Investors Keywords: 'interest rate  deposit rate  inflation rate  return on assets  return on equity' Class number: 332.6 Abstract: The interest setting behavior is treated as an important indicator of intermediation efficiency. Banks’ interest rate represents a vital component of profitability and typified a summary measure of bank net interest rate of return. Interest rates are of significant importance for efficient mobilization of resources for economic and productive activities. In the economy market, the interest setting behavior is significantly influenced by a number of factors which include macroeconomic environment, inflation and the policy interest rate (Treasury bill rate). Higher interest rate usually implies lower baking sector efficiency, marked by higher costs due to inefficient control of operating expenses, and have a negative impact of financial developments, resulting with lower investments and slower economic activity. The major purpose of this study is to identify the firm-specific and macroeconomic factors influencing the interest setting behavior of Nepalese commercial banks. The study has the following specific objectives is to analyze the impact of assets growth ratio, efficiency ratio and capital adequacy ratio in determining the interest rate, to determine the impact of return on assets on interest setting behavior and to examine the relationship between macro-economic factors such as GDP growth and inflation on interest setting behavior. This study is based on secondary data which were gathering for a sample of 18 commercial banks of Nepal within the time period from 2010 to 2016, leading to total of 126 observations. The secondary data have been obtained from Nepal Rastra Bank bulletin published by central bank of Nepal, annual audited financial statements and websites of respective commercial banks. The polled cross-sectional data analysis has been undertaken in the study. The research design adopted in this study is casual comparative types as it deals with relationship of bank specific factors like capital adequacy ratio, credit risk, management efficiency, liquidity position, return on assets and growth and macro-economic variables like GDP growth and inflation with dependent variable such as: I1 (interest on deposit) and I2 (interest on loan). The statistical methods used in the analysis are descriptive statistics, correlation analysis and regression analysis. The result shows thatcapital adequacy ratio has negative relation to I1 (interest on deposit) and I2 (interest on loan). The beta coefficient of credit risk is positive and highly significant. Efficiency ratio has negative relation with interest rate. The beta coefficient of liquidity ratio is negative for I1 (interest on deposit) and positive for I2 (interest on loan). Return on assets has positive relationship with interest on deposit. The beta coefficient of return on assets is large and highly significant. In the contrast return on assets has negative relationship with interest on loan. The beta coefficient of assets growth ratio is large and highly significant. GDP growth has negative and insignificant relation with interest on deposit whereas positive and significant relation with interest on loan. The beta coefficient of inflation is small and highly insignificant for interest on deposit and significant for interest on loan. The major conclusion of this study is thatinterest rateof Nepalese commercial banks is affected by bank-specific factors and macroeconomic factors. Credit risk and return on assets is an internal factor which holds a definitely significant positive effect on interest on deposit where as capital adequacy ratio, efficiency ratio, liquidity ratio, assets growth ratio, GDP growth rate and inflation is an internal factor which holds significant negative effect on interest on deposit. Credit risk, liquidity ratio, GDP growth rate and inflation is an internal factor which holds a definitely significant positive effect on interest on loan where as capital adequacy ratio, efficiency ratio, return on assets and assets growth ratio is an internal factor which holds significant negative effect on interest on loan. The study also concludes that there are behaviors towards the commercial banks in Nepal, which always expects to maintain a stable interest rate at a certain level in the long term. Thus, the high interest rate is not defined as the low level of efficiency of Nepalese commercial banks, but rather reflects the high asymmetric information and the high level of profitability of the bank.

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Financial leverage and firm performance : a case of Nepalese commercial banks / Manish Bhattarai 

Public ISBD Title : Financial leverage and firm performance : a case of Nepalese commercial banks Material Type: printed text Authors: Manish Bhattarai, Author Publication Date: 2015 Pagination: 102p. Size: GRP/Thesis Accompanying material: 5/B General note: Including bibilography Languages : English Descriptors: Business - Mathematical models Capital market Capital-Mathematical models Leveraged buyouts Nepal Keywords: 'financial leverage  capital adequacy ratio  debt to assets ratio  return on assets  return on equity  liquidity' Class number: 658.152 Abstract: Financial decisions are taken in different paradigms of investment, financing, asset management and dividend policy. Investment decision is mainly concerned with three areas either the manager has to take decision about opening a new venture, or decision may be specific to expansion of current business venture and it may be to replace current assets or machinery.Once the investment decision is done, another most important decision is to how to finance in the investment. Firms mainly finance either from internal or from external sources. Firms internally finance from retained earnings whereas external source for firms is to either borrow or to finance through equity. Thus, the mix of debt and equity in financing is known as financial leverage. In another word, financial leverage represents a firm’s financial framework which consists of the debt and equity used to finance the firm. An unlevered firm is an all-equity firm, whereas a levered firm is made up of ownership equity and debt. Financial leverage takes the form of a loan or other borrowing (debt), the proceeds of which are (re)invested with the intent to earn a greater rate of return than the cost of interest. Financial leverage allows a greater potential returns to the investors than otherwise would have been available, but the potential loss is also greater: if the investment becomes worthless, the loan principal and all accrued interest on the loan still need to be repaid. Financial leverage has always been one of themain topics among the studies of finance scholars.Its importance derives from the fact that capitalstructure is tightly related to firm’s performance tofulfill the needs of various stakeholders. The lastcentury has witnessed a continuous developing ofnew theories on the optimal debt to equity ratio. Thefirst milestone on the issue was set by Modiglianiand Miller (1958), whose model argued on the irrelevance of the capital structure in determining firms’ value and performance.This study attempts to shed some light on the financial leverage issues in Nepalese context. The main issue is to analyze impact of financial leverage on firm’s performance in context of Nepalese commercial banks. The data collected for the study are quantitative and based on fact. The quantitative data were taken from different secondary sources.Data were obtained from financial statements of 16 sample commercial banks. The necessary financial statements have been collected from official website of concern commercial banks, Nepal Stock Exchange Limited (NEPSE), Security Board of Nepal (SEBON), and Nepal Rastra Bank (NRB). This study collected financial statements of sampled commercial banks for the period of eleven years. (i.e. July 2002/03 to July 2012/13).Data of variables were extracted from balance sheet, and income statement of respective banks. Financial leverage and control variables namely firm size, non interest income, liquidity and capital adequacy ratio has been used as independent variables whereas return on assets, return on equity and net interest margin has been used as proxy for firm performance as dependent variable. Descriptive statistics and correlation analysis has been used as method of analysis along with different statistical tests of significance for validation of model such as t-test, F-test, detection of autocorrelation and multi-colinearity and stepwise linear regression analysis. After the data analysis, the result was found that the financial leverage effect negatively to firm performance. The presence of control variables also showed no effect in direction of relationship whereas only magnitude of relationship between financial leverage and firm performance was observed to be changed. Thus, the study concludes that to increase performance, firms need to decrease financial leverage. Recommendation discussed includes:  To increase performance of firm, firm need to decrease financial leverage.  Firm need to decrease size i.e., total assets to increase firm performance.  Non-interest income and capital adequacy ratio need to be increased for the betterment of firm performance. The report also investigates the fact that the analysis conducted has limitations. Some of the limitations include: sample firms are only taken from commercial banks sector and other non-financial firms has not been used in study, only 16 out of 31 commercial banks has been used as sample due to availability of data and the study has assumed the linear relationship between dependent and independent variables and non-linear assumption has not been used in analysis. Financial leverage and firm performance : a case of Nepalese commercial banks [printed text] / Manish Bhattarai, Author . - 2015 . - 102p. ; GRP/Thesis + 5/B. Including bibilography Languages : English Descriptors: Business - Mathematical models Capital market Capital-Mathematical models Leveraged buyouts Nepal Keywords: 'financial leverage  capital adequacy ratio  debt to assets ratio  return on assets  return on equity  liquidity' Class number: 658.152 Abstract: Financial decisions are taken in different paradigms of investment, financing, asset management and dividend policy. Investment decision is mainly concerned with three areas either the manager has to take decision about opening a new venture, or decision may be specific to expansion of current business venture and it may be to replace current assets or machinery.Once the investment decision is done, another most important decision is to how to finance in the investment. Firms mainly finance either from internal or from external sources. Firms internally finance from retained earnings whereas external source for firms is to either borrow or to finance through equity. Thus, the mix of debt and equity in financing is known as financial leverage. In another word, financial leverage represents a firm’s financial framework which consists of the debt and equity used to finance the firm. An unlevered firm is an all-equity firm, whereas a levered firm is made up of ownership equity and debt. Financial leverage takes the form of a loan or other borrowing (debt), the proceeds of which are (re)invested with the intent to earn a greater rate of return than the cost of interest. Financial leverage allows a greater potential returns to the investors than otherwise would have been available, but the potential loss is also greater: if the investment becomes worthless, the loan principal and all accrued interest on the loan still need to be repaid. Financial leverage has always been one of themain topics among the studies of finance scholars.Its importance derives from the fact that capitalstructure is tightly related to firm’s performance tofulfill the needs of various stakeholders. The lastcentury has witnessed a continuous developing ofnew theories on the optimal debt to equity ratio. Thefirst milestone on the issue was set by Modiglianiand Miller (1958), whose model argued on the irrelevance of the capital structure in determining firms’ value and performance.This study attempts to shed some light on the financial leverage issues in Nepalese context. The main issue is to analyze impact of financial leverage on firm’s performance in context of Nepalese commercial banks. The data collected for the study are quantitative and based on fact. The quantitative data were taken from different secondary sources.Data were obtained from financial statements of 16 sample commercial banks. The necessary financial statements have been collected from official website of concern commercial banks, Nepal Stock Exchange Limited (NEPSE), Security Board of Nepal (SEBON), and Nepal Rastra Bank (NRB). This study collected financial statements of sampled commercial banks for the period of eleven years. (i.e. July 2002/03 to July 2012/13).Data of variables were extracted from balance sheet, and income statement of respective banks. Financial leverage and control variables namely firm size, non interest income, liquidity and capital adequacy ratio has been used as independent variables whereas return on assets, return on equity and net interest margin has been used as proxy for firm performance as dependent variable. Descriptive statistics and correlation analysis has been used as method of analysis along with different statistical tests of significance for validation of model such as t-test, F-test, detection of autocorrelation and multi-colinearity and stepwise linear regression analysis. After the data analysis, the result was found that the financial leverage effect negatively to firm performance. The presence of control variables also showed no effect in direction of relationship whereas only magnitude of relationship between financial leverage and firm performance was observed to be changed. Thus, the study concludes that to increase performance, firms need to decrease financial leverage. Recommendation discussed includes:  To increase performance of firm, firm need to decrease financial leverage.  Firm need to decrease size i.e., total assets to increase firm performance.  Non-interest income and capital adequacy ratio need to be increased for the betterment of firm performance. The report also investigates the fact that the analysis conducted has limitations. Some of the limitations include: sample firms are only taken from commercial banks sector and other non-financial firms has not been used in study, only 16 out of 31 commercial banks has been used as sample due to availability of data and the study has assumed the linear relationship between dependent and independent variables and non-linear assumption has not been used in analysis.

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Firm specific and macroeconomic determinants in stock price : evidence from Nepalese commercial bank / Jyoti Malla 

Public ISBD Title : Firm specific and macroeconomic determinants in stock price : evidence from Nepalese commercial bank Material Type: printed text Authors: Jyoti Malla, Author Publication Date: 2015 Pagination: 78p. Size: GRP/Thesis Accompanying material: 5/B General note: Including bibilography Languages : English Descriptors: Banks Banks and banking Commercial banks Firm specific Macroeconomics Share-Price Keywords: 'equality share  share price  equality share prices  return on assets  return on equity' Class number: 332.632 Abstract: Share price has received much attention in academic literature. There is far less research on the empirical side. All the empirical work investigating relationship between share price, bank specific and macroeconomic variables has focused developed economy. This study investigates the relationship between share price, bank specific and macroeconomic variables of selected Nepalese commercial banks. The stock price in the market is not static rather it changes every day. The most obvious factors that influence are demand and supply factors. The price of any commodity is affected by both micro-economic and macro-economic factors. This study basically aimed at examines the empirical relationship between the stock prices, firm specific variables, and macroeconomic factors. The specific objectives of the study are: (a) to explore the effect of firm specific variables such as size measured by total assets, earning per share, and return on assets of the commercial banks on their stock prices, (b) to identify the effect of macroeconomic variables namely gross domestic product (GDP) and inflation on common stock prices of banks, (c) to investigate the most influencing factors to explain the prices of the stock of Nepalese commercial banks, (d) to provide the suggestions based on the research findings. This study is basically based on the analysis of secondary data. The data for firm specific variables including stock market data have been obtained from financial statements of the sample firms recorded in the database of Nepal Stock Exchange (NEPSE) Limited and Securities Board of Nepal (SEBON) provided in their respective websites. NEPSE and SEBON have maintained the record of firm specific financial data from the fiscal year 2002 to 2013 in their respective database in websites. The annual data series on macroeconomic variables such as inflation and interest rate have been obtained from websites of IMF. The data relating to GDP and inflation has been obtained from the fiscal year 2002 to 2013price. For analyzing the relationship, market share price is used as a dependent variable and SIZE, EPS, ROA, GDP, Inflation and MS is used as an independent variable. Besides, the study also used descriptive statistics to analyze the views of the financial executives, which mainly focus on the qualitative part of the major aspect of the market price share. The result of the study showed that joint ventures have higher market share price than non-joint ventures. The major conclusion of this study is the firm specific variable like Size, EPS, ROA and macroeconomic variable gross domestic product, inflation and money supply has a dominant impact on the stock price determination in Nepalese enterprises. Size had positive and significant relationship in MPS of commercial banks. To sum up, the main implication of this study is that money supply is the predominant factor that determines the market share prices of commercial bank in Nepal. Other extraneous factors also caused market share price to fluctuate. Therefore, investors must look after all factors, which explicitly of implicitly affect market share price so that they can arrive at rational decision. Finally, Nepalese bankers and policy makers should also pay adequate attention to analyze the factors that make variation in the market share price of the commercial bank. Firm specific and macroeconomic determinants in stock price : evidence from Nepalese commercial bank [printed text] / Jyoti Malla, Author . - 2015 . - 78p. ; GRP/Thesis + 5/B. Including bibilography Languages : English Descriptors: Banks Banks and banking Commercial banks Firm specific Macroeconomics Share-Price Keywords: 'equality share  share price  equality share prices  return on assets  return on equity' Class number: 332.632 Abstract: Share price has received much attention in academic literature. There is far less research on the empirical side. All the empirical work investigating relationship between share price, bank specific and macroeconomic variables has focused developed economy. This study investigates the relationship between share price, bank specific and macroeconomic variables of selected Nepalese commercial banks. The stock price in the market is not static rather it changes every day. The most obvious factors that influence are demand and supply factors. The price of any commodity is affected by both micro-economic and macro-economic factors. This study basically aimed at examines the empirical relationship between the stock prices, firm specific variables, and macroeconomic factors. The specific objectives of the study are: (a) to explore the effect of firm specific variables such as size measured by total assets, earning per share, and return on assets of the commercial banks on their stock prices, (b) to identify the effect of macroeconomic variables namely gross domestic product (GDP) and inflation on common stock prices of banks, (c) to investigate the most influencing factors to explain the prices of the stock of Nepalese commercial banks, (d) to provide the suggestions based on the research findings. This study is basically based on the analysis of secondary data. The data for firm specific variables including stock market data have been obtained from financial statements of the sample firms recorded in the database of Nepal Stock Exchange (NEPSE) Limited and Securities Board of Nepal (SEBON) provided in their respective websites. NEPSE and SEBON have maintained the record of firm specific financial data from the fiscal year 2002 to 2013 in their respective database in websites. The annual data series on macroeconomic variables such as inflation and interest rate have been obtained from websites of IMF. The data relating to GDP and inflation has been obtained from the fiscal year 2002 to 2013price. For analyzing the relationship, market share price is used as a dependent variable and SIZE, EPS, ROA, GDP, Inflation and MS is used as an independent variable. Besides, the study also used descriptive statistics to analyze the views of the financial executives, which mainly focus on the qualitative part of the major aspect of the market price share. The result of the study showed that joint ventures have higher market share price than non-joint ventures. The major conclusion of this study is the firm specific variable like Size, EPS, ROA and macroeconomic variable gross domestic product, inflation and money supply has a dominant impact on the stock price determination in Nepalese enterprises. Size had positive and significant relationship in MPS of commercial banks. To sum up, the main implication of this study is that money supply is the predominant factor that determines the market share prices of commercial bank in Nepal. Other extraneous factors also caused market share price to fluctuate. Therefore, investors must look after all factors, which explicitly of implicitly affect market share price so that they can arrive at rational decision. Finally, Nepalese bankers and policy makers should also pay adequate attention to analyze the factors that make variation in the market share price of the commercial bank.

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Barcode	Call number	Media type	Location	Section	Status
89/B	332.632 MAL	Thesis/Dissertation	Uniglobe Library	Technology	Available

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