Korea Capital Market Institute

This study examines the current legal framework governing director qualification requirements and disclosure obligations in Korea and compares them with regulatory practices in major jurisdictions, including Japan, the United Kingdom, Australia, the United States, Hong Kong, and Singapore. While Korea formally bases both qualification requirements and disclosure duties in statute, the substantive level of regulation is considerably weaker than that of major foreign jurisdictions. A key institutional gap in Korea’s framework is that disqualification rules under the Commercial Act apply only to independent directors, while no statutory qualification criteria exist for inside directors. This asymmetry is unique among major jurisdictions, where disqualification rules—whether statutory or administrative—generally apply uniformly to all directors regardless of their board role. Although certain sector-specific statutes (e.g., the Act on Corporate Governance of Financial Companies, the Act on Aggravated Punishment of Specific Economic Crimes) impose additional limitations, their coverage is narrow and fragmented, leaving substantial regulatory blind spots. Korea’s disclosure regime for director nominees, introduced in 2020, also relies heavily on indirect and summary-level information, such as tax delinquency, statutory disqualification status, and employment history at insolvent firms. Unlike foreign regimes that require disclosure of specific factual information—including criminal convictions, bankruptcy and insolvency proceedings, regulatory sanctions, and civil judgments—Korea does not mandate disclosure of the underlying facts that investors need to evaluate risks associated with director candidates. As a result, shareholders’ ability to make informed decisions about board composition remains limited. In contrast, major jurisdictions operate far more comprehensive and integrated regulatory frameworks. Japan, the United Kingdom, and Australia apply uniform qualification standards to all directors—regardless of whether they serve as inside or independent directors—and permit broad grounds for disqualification, including misconduct, insolvency-related violations, regulatory breaches, or deficiencies in integrity and competence. The United Kingdom’s Company Directors Disqualification Act (CDDA) enables courts and regulators to impose disqualification orders for up to fifteen years, reflecting the jurisdiction’s strong emphasis on safeguarding corporate governance and market integrity. Australia adopts a similarly stringent approach, allowing disqualification for up to twenty years in cases involving repeated violations or conduct demonstrating unfitness to serve as a director. Furthermore, jurisdictions such as Hong Kong, Singapore, the United States, and Australia require extensive disclosure of a director’s criminal, civil, insolvency-related, and regulatory histories at the time of appointment. These regimes emphasize fact-based transparency, mandating the disclosure of specific events—such as convictions, sanctions, bankruptcy proceedings, and regulatory investigations—rather than relying on summary indicators or categorical statements. As a result, investors in these markets are equipped with sufficiently detailed information to evaluate the suitability and risk profile of director candidates, enabling more informed market-based assessments of board quality and governance risks. Based on these findings, this study suggests that Korea should pursue a two-track reform strategy. First, in the short term, Korea should strengthen its disclosure regime by expanding the scope of required information to include criminal, civil, administrative, and insolvency-related histories, and by shifting from a binary “yes/no” reporting structure to one that provides factual context necessary for market-based evaluation. Second, in the medium to long term, Korea should consider harmonizing qualification criteria across inside and independent directors, addressing the current regulatory asymmetry and aligning domestic standards with global norms. Incorporating foreign disqualification records or insolvency-related sanctions into Korean qualification assessments may also enhance consistency and regulatory effectiveness. Ultimately, a more comprehensive qualification and disclosure framework would improve investor protection, strengthen market confidence, and enhance the integrity and accountability of corporate boards in Korea.

Korea has gradually mandated corporate governance reporting by firm size since 2019 and will extend it to all KOSPI-listed companies by 2026. Using panel data on all non-financial KOSPI firms from 2017–2024, this study estimates the causal effects of mandatory disclosure on governance quality and firm value. Employing Staggered Difference-in-Differences and Regression Discontinuity designs, I find that mandatory disclosure raised overall governance scores—especially in shareholder rights and audit practices—yet had no significant impact on board governance or firm value.  These findings suggest that increases in governance scores were either too small or limited to easily adjusted quantitative and formal aspects, failing to bring substantive governance reform or enhance firm value. Even with higher compliance rates, without qualitative improvements in management practices or decision-making, disclosure risks remaining a mere “box-ticking” exercise with little impact on firm value. Korea’s persistently low rankings in qualitative governance assessments and the gap between formal compliance and actual governance improvements support this view. In particular, insufficient progress in board governance may have constrained the improvement of firm value. Numerous prior studies document a positive link between board effectiveness and firm value, and our analysis likewise shows that firms with rising board scores after mandatory disclosure experienced higher firm value. These results suggest that difficult-to-reform board elements may have remained unchanged while only easier, more formal indicators improved. To ensure that disclosure translates into genuine governance reform and firm value improvement, policy should (i) refine and, where needed, add core indicators to capture substantive improvements and (ii) strengthen disclosure practices—requiring fuller explanations of both compliance and non-compliance, enhancing oversight, and integrating governance reports with business and sustainability reports for more effective information provision.

The Korean Target Date Fund (TDF) market has expanded substantially over the past decade, growing from KRW 67.2 billion in 2016 to KRW 16.6 trillion in 2024. The majority of TDF assets are held within retirement pension accounts, with Defined Contribution (DC) plans and Individual Retirement Pensions (IRP) serving as the primary channels of utilization. This development suggests that TDFs have played a meaningful role in retirement asset management in Korea, particularly as a structured investment option for long-term savers.   Despite this expansion, the introduction of the Default Investment Option (DIO) system in July 2023 has had a limited impact on increasing TDF utilization to date. Structural features of the current system—such as the inclusion of a large share of principal-protected products and the requirement that participants actively select default options—have constrained the automatic allocation function that default arrangements are intended to provide. At the same time, the competitive landscape of retirement asset management has evolved rapidly, with exchange-traded funds (ETFs), robo-advisors, and industry-wide retirement pension funds emerging as alternative investment vehicles.   An empirical analysis of TDF performance reveals several notable characteristics. First, risk exposure and return profiles vary systematically across target dates, reflecting differences in asset allocation paths over the investment horizon. Second, even among TDFs with the same target date, performance dispersion and persistence are observed, indicating meaningful variation in investment strategies across asset managers. These findings suggest that competition and differentiation among TDF providers are actively shaping market outcomes, rather than TDFs operating as a homogeneous product category.   In terms of costs, TDF expense ratios are generally lower than those of traditional mutual funds but remain higher than those of ETFs and other low-cost alternatives. Moreover, expense ratios tend to increase with longer target horizons, reflecting structural features of TDF design. Importantly, the relationship between costs and performance is not uniform: higher-cost TDFs do not necessarily underperform lower-cost funds, underscoring the need to evaluate fees in conjunction with investment strategy and outcomes rather than in isolation.   Overall, the findings indicate that the key policy issue is not whether TDFs should continue to grow, but under what institutional and market conditions they can function effectively as an automatic asset allocation tool within the retirement pension system. Improvements in the design and objectives of the default investment framework, greater transparency in cost structures, enhanced comparative disclosure, and clearer evaluation of performance relative to risk are essential to strengthening the role TDFs can play. Within a competitive retirement investment environment, TDFs represent one of several viable options for supporting long-term, life-cycle–based asset allocation, provided that the surrounding regulatory and institutional conditions are appropriately aligned.

Cross-border transactions in blockchain-based cryptoassets are rapidly expanding in ways that complement or potentially substitute traditional financial infrastructure. According to IMF estimates, the volume of cross-border cryptoasset transactions reached approximately USD 2.5 trillion as of 2024. After a period of rapid expansion in 2021 followed by a subsequent correction, cross-border activity has entered a renewed growth phase led primarily by stablecoins. In particular, recent cross-border transactions have moved beyond investment-driven flows centered on store-of-value cryptoassets, with an increasing share of activity reflecting actual use cases such as payments and remittances conducted via stablecoins. Empirical evidence and the existing literature suggest that store-of-value cryptoassets are highly sensitive to the global financial cycle and tend to behave as typical risk assets, whereas stablecoins and small-value cryptoasset transactions are more closely linked to real-economy factors such as remittance costs, exchange rate volatility, and the intensity of capital controls. Moreover, in some jurisdictions, stablecoins have been observed to function as de facto substitutes for foreign currency or as channels for regulatory circumvention in cross-border capital movements. At the same time, discussions surrounding wholesale CBDC–tokenised deposit–based settlement architectures, such as the BIS’s Project Agora, indicate that international coordination efforts to integrate private-sector innovation into the formal payment system are gaining momentum. These developments point to a gradual shift toward a more layered and networked structure in the international monetary and foreign exchange system. For Korea, the growing use of stablecoins and on-chain cross-border transactions raises important policy challenges, including ensuring consistency within the existing foreign exchange and capital account regulatory framework, enhancing real-time monitoring capabilities, modernising domestic payment infrastructure through tokenised deposits and CBDC-based systems, and engaging strategically in international discussions on payment and settlement standards. Accordingly, Korea needs to move beyond a narrow focus on whether to regulate digital assets and instead formulate policy from a broader perspective that redefines the role of the won and domestic financial institutions within an evolving international payment environment shaped by digital liquidity.

This study empirically analyzes the investment value of stock recommendations and target prices issued by Korean stock analysts. Using portfolios constructed from analysts’ recommendations and target prices announced between 2000 and 2024, the study examines their abnormal returns and obtains the following results. First, stocks with favorable recommendations or high implied expected returns embedded in target prices exhibit positive abnormal returns, confirming the investment value of analysts’ recommendations and target prices. Second, stock recommendations and target prices possess independent investment value, and combining the two pieces of information yields higher abnormal returns. Third, the investment value of recommendations and target prices is relatively greater for small- and mid-cap stocks. Fourth, the investment value of recommendations and target prices is no longer observed after 2013. The disappearance of the investment value of analysts’ recommendations and target prices is attributed to a decline in analysts’ information advantage and a weakening of the discriminatory power of the information they provide. Following the CJ E&M incident in 2013 and the subsequent tightening of regulations on market abuse, analysts’ channels for acquiring private information were constrained. As a result, stock recommendations became increasingly concentrated on ‘buy’, while both the cross-sectional dispersion and the time-series variability of implied expected returns declined. These findings suggest that a reduction in the information content of analysts’ recommendations and target prices contributed to the erosion of their investment value. As producers and intermediaries of information and as monitors of the market, analysts’ economic role fundamentally rests on their information advantage, analytical capability, objectivity, and accuracy. Therefore, the disappearance of the investment value of recommendations and target prices due to diminished information advantage and weakened discriminatory power raises concerns regarding the essential function of analysts. Going forward, analysts should enhance the value added of their information by utilizing diverse alternative data, adopting new analytical techniques, and differentiating their areas of analysis, while also reducing optimistic bias through stronger independence and improved performance evaluation criteria. Policymakers, in turn, should improve the quality of disclosure, strengthen formal communication channels between listed firms and analysts, and promote the disclosure of non-financial information to enhance the information environment of the stock market.

Since the outbreak of COVID-19, Korea’s capital market has seen a rapid expansion of its retail investor base, with a growing number of individuals actively investing in overseas assets and structurally shifting from a domestic-equity-centered focus to broader global portfolios. Yet, there has been little account-level empirical evidence on how individuals conduct overseas direct investment, how foreign asset allocation reshapes their realized returns and risk, and through what channels characteristics such as age, gender, and asset size affect performance. To address this gap, this report reconstructs individual portfolios that include both domestic and foreign listed stocks and ETPs, using detailed account-level holdings and transactions for roughly 100,000 investors at a major securities firm between 2020 and 2022, and analyzes their investment behavior and outcomes in an integrated way.  The results show that, although domestic equities remain dominant overall, younger investors in their 20s and 30s and high-wealth investors hold significantly higher shares of foreign assets and are especially active in overseas ETPs. Male investors tend to hold fewer positions but concentrate more heavily in higher-risk assets compared with women, while high-wealth investors more often build systematic global portfolios centered on foreign ETFs. By contrast, small-scale investors frequently trade high-leverage, derivative-type foreign ETPs with limited capital. Even when the number of holdings is large, effective diversification is often weak, with assets clustered in a few names and specific U.S. stocks and ETPs, resulting in structures that superficially resemble international diversification but in practice are highly dependent on the U.S. market and leverage/inverse products, exposing investors to elevated volatility and uncertainty. In terms of performance, overall returns across domestic and foreign assets were generally weak relative to the broader equity market over the same period. After accounting for trading costs, more investors incurred losses than realized gains, and only a small minority meaningfully outperformed benchmark indices. While many participants in overseas markets did see improvements in portfolio returns and risk-adjusted performance, roughly half of them still failed to achieve satisfactory outcomes. A quantile analysis of performance drivers reveals strong heterogeneity: for low-performing investors, excessive trading without sufficient experience, concentration in a small number of stocks, and aggressive risk-taking further depress returns, whereas for top performers these same traits are not necessarily harmful and can sometimes be linked to outperformance. These findings indicate that overseas investment can expand diversification opportunities and improve results for some investors, but also embeds structural risks through excessive concentration and frequent trading of high-risk listed products.  Policy-wise, it is notable that relatively stable and favorable outcomes are observed when investors use savings-type accounts to invest long term and consistently in broadly diversified instruments such as plain-vanilla ETPs and overseas equity ETFs. This suggests the need to promote wider use of long-term, diversification-oriented accounts such as IRPs and ISAs, strengthen tax incentives for long-horizon investing, and tighten oversight of product design, disclosure, and sales practices for high-risk products including leverage/inverse ETPs. For young and small-scale investors in particular, expanding tailored financial education and digital, intuitive risk-warning systems is essential. Ultimately, enabling individuals to rely more on pooled investment vehicles and advisory or wealth-management services—rather than bearing complex investment decisions entirely on their own—will support both the financial soundness of households and the sustainable development of Korea’s capital market.