Effects of Foreign Securities Firms’ Entry on the Main Business Indicators of Domestic Securities Firms

Prior to the 1997 financial crisis, foreign securities firms mainly entered the Korean market in the form of simple local branches and their effect on the industry was relatively negligible. However, during the post crisis period foreign firms’ influence increased with greater effects. Partly it could be due to their aggressive market expansion strategy of acquiring unhealthy but established domestic securities firms. Using financial information from 2001 to 2005 we review how increased entry of foreign securities firms affected the main business indicators of domestic counterparts. The results indicate that profitability of domestic firms declined, while soundness and cost efficiency improved. This implies that the competition between securities firms in Korea became fierce and domestic firms no longer dominate the brokerage business, which is the cash cow part of securities businesses. Moreover, the conservative business approach of foreign securities firms had an effect on sound management of securities business operations. Increased competition led to improve cost efficiency with reduction of general and administrative expenses of domestic firms.