Abstract: This paper examines the effect of firm specific variables on stock returns of financial and non-financial enterprises in Nepal. Fixed effects regression models are estimated to identify causal relationship of firm size, book-to-market ratio, leverage, earnings yield and assets growth with adjusted stock return. A balanced panel data of 110 observations for 11 non-financial firms and 120 observations for 12 commercial banks listed in NEPSE are taken for the study covering a 10 year period from 2009 till 2018. Comparative analysis is done by estimating sector wise regression models. For non-financial firms, fixed effects model performed better than random effect model and OLS model suggested by Hausman test and Wald test. OLS model showed better by Wald test for financial firms. The findings reveal that size and book-to-market equity ratio have significant negative impact on stock returns in the non-financial firms. However for financial firms only book-to-market ratio shows significant negative impact on stock returns in univariate and bivariate models. Leverage is observed to have positive impact on stock return at 10 percent level of significance in univariate model for financial firms.