Corporate Dividend Policy: A Study of Commercial Banks of Nepal

Dividend policy is the policy used by a company to decide how much it will pay out to shareholders in dividends. Taking financial indicators of 8 commercial banks for the period of 1996/97 to 2006/07, this study attempts to elucidate the dividend practices of commercial banks of Nepal. Abound by controversies and unpredictability, this study concludes that commercial banks of Nepal do not show uniform trend of dividend policy. Dividend policy practiced by commercial banks of Nepal is neither fully explained by residual theory nor stable theory. With the development of financial institutions in Nepal, they need to follow a robust method of dividend policy so that investors can predict stock market and make a rationale investment decision. Background Financial institutions are important for achieving the basic objective of a country's economic and social progress. They enjoy a strategic and crucial position in our mixed economy. Financial institutions regulate different policies so that the economic standard of the country will be improved at large. They, in fact, play a catalyst role for resource mobilization and capital formation to facilitate the process of economic development of the country. Commercial banks, among other, are key financial institutions for mobilizing national resources and keeping the economy alive. Despite making 1 Ms. Bhandari is a Master in Business Studies and works at Nepal Telecom