Assessing the impact of key financial indicators on the market price of commercial banks in the emerging market

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Abstract

This research examines how the price-to-earnings ratio and other financial indicators affect Nepalese commercial bank market prices. It emphasizes the prominence of the market P_E ratio in Nepalese investors’ investment decisions. This study aims to analyze the relationship between the P_E ratio, in addition to other financial indicators, with the market prices of Nepalese commercial banks. Multiple regression models were employed to analyze 209 yearly observations from the fiscal years 2012/2013 to 2022/2023 of all the commercial banks listed at the Nepal Stock Exchange (NEPSE). The data have been gathered from financial reports and stock market data provided by NEPSE. The study reveals that the price-to-earnings ratio exhibits strong predictive power in explaining the market price of commercial banks in Nepal. This finding highlights the significance of profitability measurement in influencing investor decision-making in the Nepalese banking sector. The findings of this study are expected to benefit investors, researchers, policymakers, and other stakeholders by enhancing financial literacy and informed policymaking. By understanding the impact of financial indicators on market prices, stakeholders can make more informed investment decisions, thereby contributing to a stronger financial system and economic stability.

Keywords: Book Value Per Share, Dividend Rate, Earnings Yield, Market Price, Price-to-Earnings Ratio, Market-to-Book Value

Authors’ individual contribution: Conceptualization — R.G.; Methodology — R.G., R.K.D., and B.G.; Software — R.G. and R.K.D.; Validation — R.K.D. and B.G.; Formal Analysis — R.G. and R.K.D.; Investigation — R.G. and R.K.D.; Resources — R.G., R.K.D., and B.G.; Data Curation — R.G. and B.G.; Writing — Original Draft — R.G.; Writing — Review & Editing — R.G., R.K.D., and B.G.; Visualization — R.G. and R.K.D.; Supervision — R.G. and B.G.; Project Administration — R.K.D.; Funding Acquisition — R.G., R.K.D., and B.G.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G11, G12, G21, G41

Received: 23.02.2024
Accepted: 12.08.2024
Published online: 16.08.2024

How to cite this paper: Gurung, R., Dahal, R. K., & Ghimire, A. (2024). Assessing the impact of key financial indicators on the market price of commercial banks in the emerging market. Risk Governance and Control: Financial Markets & Institutions, 14(3), 68–75. https://doi.org/10.22495/rgcv14i3p7