Law Quarterly

Law Quarterly

INFORMATION ASYMMETRY IN BANKING LAW (CASE STUDY: SYNDICATED LOANS CONTRACTS)

Document Type : Research Paper

Authors
Seyyed Mohammad Tabataba’i Nejhad 1
Mahmoud Bagheri 2
Hedayat Farkhani 3
1 Assistant Professor, Department of Law, Faculty of Law and Politics, University of Tehran, Iran
2 Associate Professor, Department of Law, Faculty of Law and Politics, University of Tehran, Iran
3 Ph.D. Candidate of Oil and Gas Law, Faculty of Law and Politics, University of Tehran, Iran
10.22059/jlq.2017.61321
Abstract
The prerequisite of success in economic activities is to get access to correct and reliable information. This accessing to correct and precise information, one can take advantage of activities in various markets. In a trade market, the information asymmetry occurs if one of the two has more material or more consequential information compared to the others, which may lead to the market failure. One of the main markets is the monetary and banking one in which the financial and economic information are more significant compared to the other markets’. Information asymmetry in this market may lead to destructive effects. One of the most important topics of financial and banking markets is facilities granted by the banks. Syndicated loans are facilities prepared and paid to applicant by two or more banks or credit institutes jointly. The structure of these loans is such that the risk resulted by information asymmetry may lead to irregularity of them. In this article, we analyze the problem of information asymmetry based on the structure of these loans, and its factors including moral hazard and the adverse selection. Results show that there is the eventuality of the asymmetry of information and its factors between the syndicate members and agent bank, as well as between the applicant and the syndicate members. Finally, in order to avert information asymmetry and prevent its consequences, there would be some suggestions at the end of the article.
Keywords
Adverse selection
Information Asymmetry
Moral hazard
syndicated loans

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Law Quarterly
Volume 47, Issue 1
Spring 2017
Pages 49-64