Korea Capital Market Institute

Recently, strengthening capital market–based financing for innovative SMEs has become an important policy issue in Korea. Despite the development of the domestic securities industry around capital-based investment banking, its role in SME financing and M&A advisory remains limited. This study aims to address this issue by examining U.S. small- and mid-sized investment banks that primarily serve the middle market and growing SMEs. Specifically, it analyzes their business models and competitive strategies and derives implications for the domestic securities industry. U.S. small- and mid-sized IBs are classified into Middle Market IBs, Boutique IBs, and Elite Boutique IBs based on client size and service scope. They have built competitiveness not on capital, but on human capital, industry expertise, and networks. Adopting a capital-light model that outsources capital-intensive functions such as clearing and settlement, they position themselves in segmented markets according to deal size and client characteristics, playing key roles in middle-market M&A, private capital raising, and public finance. From a business model perspective, Middle Market IBs pursue both full-service and specialized strategies. Some of them have expanded industry expertise and service scope through acquisitions of Boutique IBs. In response to the growth of the private equity market, they have recently established Financial Sponsor Coverage and expanded related services such as Private Capital Advisory, leveraged finance, and private debt, while integrating SMID-cap and sector-focused research, corporate access, and sales and trading to connect investor networks with deal sourcing. Boutique IBs specialize in specific areas such as M&A advisory, ECM, and public finance, strengthening deal sourcing capabilities based on industry expertise, senior professionals’ networks, and close client relationships. Elite Boutique IBs focus on large-scale M&A and high value-added advisory, competing on the basis of senior bankers’ reputations and global networks. These findings offer several implications for the domestic securities industry. In financing innovative firms, the core of competitiveness lies not in capital but in industry expertise and networks, highlighting the need to strengthen advisory functions and expand participation in the M&A market. It is necessary to create an institutional environment that enables the emergence of small, specialized IBs centered on professional talent, and to enhance the flexibility of equity issuance regulations to allow diverse financing instruments to be utilized.

The Korean government is pursuing plans to extend foreign exchange market operations to a 24-hour trading regime from the second half of 2026 in preparation for inclusion in the MSCI Developed Market Index. However, concerns have been raised that exchange rate volatility could increase given limited liquidity during overnight hours. To inform this policy debate, this study examines the effects of the July 2024 extension of FX trading hours (closing time: 3:30 PM → 2:00 AM the following day) on KRW/USD exchange rate volatility and market stability. The key findings are as follows. First, when compared over the same overnight window, volatility in the onshore regular market after the extension was not significantly higher than that of the NDF market prior to the extension. Moreover, during the same time window after the extension, the onshore market exhibited lower volatility than the NDF market, suggesting that the onshore market provides a more stable price formation environment. Second, the reduction in gap volatility—the price discrepancy arising while the market is closed—exceeded the mechanical decline attributable solely to the shortening of the overnight gap, indicating that the extended trading hours enhanced the continuity of overnight information incorporation and thereby substantively mitigated gap risk. Third, tail risk did not deteriorate even under a conservative measurement that incorporates price movements during the extended overnight session. These results demonstrate that concerns over increased exchange rate volatility from extended trading hours are not empirically supported. Rather, the extension is assessed to have been accompanied by improvements in market microstructure, including the mitigation of gap risk and the strengthening of price discovery in the onshore market. Nevertheless, as temporary price overshooting followed by partial reversal has been observed when major political or economic events occur during overnight hours, the transition to a 24-hour trading regime should be accompanied by measures to enhance overnight liquidity provision and strengthen volatility monitoring frameworks.

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.