What drives the profitability of brokerage firms at Damascus securities exchange?

Purpose Brokerage firms are the backbone of financial markets, and they provide a wide variety of services to investors at Damascus Securities Exchange (DSE) that range from mere brokerage services to portfolio and IPO management. The purpose of this study is to examine the determinants of brokerage firms’ profitability at the DSE. Design/methodology/approach The sample of this study includes all brokerage firms, live and dead, which were functional at the DSE from 2016 to 2023. The authors used a number of estimation methods; pooled random effects ordinary least squares, Generalized Method of Moments and difference-in-difference techniques. Findings The findings of this study indicate that total assets positively and significantly affect the profitability of brokerage firms as measured by return on assets (ROA) and return on equity (ROE). However, the new online trading service negatively affects brokerage firms’ profitability. Portfolio size positively influences ROA but not ROE, while the growth rate of trading volume positively affects ROE but not ROA. Gross domestic product growth and inflation have no impact on any profitability measure. Research limitations/implications Because of the unavailability of data on dead brokerage firms before 2016, this study’s sample is limited to the above-examined period. However, the period from 2011 until 2015 is contaminated with the eruption of Syrian war and excluding this period from our analysis is preferable. Second, this study’s sample period overlaps with the Syrian war which certainly affects the performance of the DSE and brokerage firms. Practical implications Brokerage firms should focus on expanding their asset base through strategic acquisitions and partnerships to enhance their profitability and competitive position. Moreover, brokerage firms should effectively and quickly build stock portfolios to capitalize on market upward trends. Furthermore, the significant positive impact of growth rate of trading volume on ROE highlights the necessity of increasing trading activity. This can be achieved through targeted marketing, enhanced customer interaction and competitive pricing strategies. Finally, to enhance their operational efficiency in a war-affected developing country, brokerage firms must leverage on financial technology (Fintech) to improve profitability. Originality/value This study is distinguished on a couple of points: First, this study introduces innovative variables that have yet to be explored, such as the investment portfolios of the brokerage firms and online trading. Second, previous studies which examined the determinants of brokerage firms’ profitability ignored financial brokerage firms located in countries affected by war, such as Syria, which face unique challenges. Hence, this study addresses these under-researched factors and bridges this gap for better understanding of the profitability determinants of Syrian brokerage firms.