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Conflicts of Interest in Financial Distress: The Role of Employees

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  • Wenchien Liu

Abstract

The interests of employees are not consistent with those of other stakeholders when firms are in financial distress. Hence, conflicts of interest among stakeholders are more severe, especially for those firms with strong union power, as news is reported in the media. However, little attention has been paid to the impacts of employees on bankruptcy resolutions. This study examines the impacts of employees (i.e., union power) on the conflicts of interest of distressed firms in the United States from 1983 to 2015. We find that union power has strong effects on conflicts of interest related to employees, such as asset sales, debtor-in-possession financing, successful emergence from bankruptcy, and CEO replacement. On the contrary, for conflicts of interest unrelated to employees, including the choice of bankruptcy resolution method, and conflicts of interest between creditors and debtors, we find no significant relationships. Finally, we also find a positive impact of union power on the probability of refiling for bankruptcy in the future after emerging successfully.

Suggested Citation

  • Wenchien Liu, 2017. "Conflicts of Interest in Financial Distress: The Role of Employees," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(12), pages 101-115, December.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:12:p:101-115
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    References listed on IDEAS

    as
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    2. Hirsch, Barry T, 1991. "Union Coverage and Profitability among U.S. Firms," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 69-77, February.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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