Agency Conflict between Principal and Agent in the Treatment and Transfer of Information: Validation by the Internal Ratings and Scoring of Borrowers in the Deposit Tunisian Banks

The purpose of this article is to explore the effect of information asymmetry in the context of agency conflicts between the principal-agent (director-Customer Relations Manager) in a bank concerning the transfer of Hard and soft information on the regulatory capital and economic capital under Basel III regulations. Several studies have used scoring models to examine the issue of information asymmetry. Our contribution to this stream of research is not only to integrate the two types of soft and hard information in the scoring models, but also to test error manipulation by bank managers during transfer of this information and its processing by customer service. The scoring model that we will apply plays a reverse role. Instead of testing it, we will assume it is reliable. Therefore, the errors made by the model when classifying borrowers will be denoted as credit risk or opportunity costs. This would allow us to identify fraud and manipulation rate made by customer service and therefore to detect information asymmetry between customer service and bank manager. The empirical analysis includes a sample of 100 creditworthy and defaulting borrowers according to Tunisian banks. This analysis is the subject of the calculation of scores and default probabilities to form both the regulatory and the economic capital using primarily the Hard information and secondly the soft information to compare between the two cases to see the reliability of the information reported by the customer relations manager to the director and therefore deduce the effect of such a manipulation of information on the regulatory and economic capital. The results showed that the asymmetry of information comes mainly from the manipulation of the soft information and specifically on the quality of the warranty. This asymmetry of soft information has the effect of increasing the risk of error as well as the credit risk and therefore more requirements of economic and regulatory capital. This situation can be solved in the case of Tunisian banks given that the authorities in charge require more regulatory capital against the economic one the thing that may fill frauds and manipulations.