The Link between IT Investment and Securities Firms’ Returns in Korea

This paper analyzes the effects of IT investment on the performance of Korean securities firms using various panel estimation procedures. To date the existing literature lacks research on the relationship between IT investment and securities firms’ performance, only covering banks and other firms. Annual panel data on the financial statements and IT investment measures of 22 Korean securities firms are exploited in the empirical analysis. Considering the results of panel unit root tests, the profitability equations of the securities firms are estimated by fixed and random effects models and panel GMM(generalized method of moments) techniques. The positive relationship between ROA and the capital budget ratio is shown to be the strongest among various proxies for returns and IT investment. The IT investments of large, retail, and high-IT securities firms are found to yield stronger profit enhancements than small, wholesale, and low-IT firms in the analyses by group. The goodness of fit of the estimation models is improved by the selection of regressors based on financial analysis theories as compared with the existing literature. Several explanations are provided for the above findings.