Market capitalization as a stability challenge in the capital market: Evidence from Nepalese banking sector

Abstract

Traditional finance views stock market and portfolio choices as products, brand, market efficiency, investors' behavior, and rationality. However, research suggests that different factors affect the share market capitalization for its stability. The strategy's role of investment, innovation, SMEs, and financial sustainability has become more crucial for Nepalese economies driven by the interaction among the investors, financial markets, venture capital ecosystem, and sustainable finance. This exploratory study aims to examine the status of market capitalization and its financial determinants, explore the relationship between market capitalization and financial indicators, and analyze the impact of earnings per share (EPS), dividend payout ratio (DPR), return on equity (ROE), book value per share (BVPS), interest rates (IRs), and number of outstanding shares (NOSs) on market capitalization. The study employs a descriptive and causal-comparative research design, utilizing purposive sampling to select 10 commercial banks.  The secondary data are acquired from the report of Nepal Rastra Bank (NRB) and the annual report of the respective bank. The data is analyzed using descriptive statistics, correlation analysis, and regression analysis. The study's findings reveal a positive relationship between book value per share, outstanding shares, and market capitalization. In contrast, earnings per share, dividend payout ratio, return on equity, and interest rate do not significantly impact market capitalization. Thus, book value per share and outstanding shares are significant variables affecting market capitalization. The study concludes that structural financial indicators like book value per share and the number of shares are of greater importance in determining the market capitalization of Nepalese commercial banks than profitability and macroeconomic indicators. The study recommends that stakeholders in the Nepalese banking sector, including policymakers and management, adopt enhanced financial sustainability frameworks and regulatory support to foster sustainable growth and attract investors.