International Journal of Economics and Finance; Vol. 9, No. 12; 2017 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education Conflicts of Interest in Financial Distress: The Role of Employees Wenchien Liu1 1 Department of Finance, Chung Yuan Christian University, Taoyuan, Taiwan, R.O.C. Correspondence: Wenchien Liu, Department of Finance, Chung Yuan Christian University, 200 Chung Pei Road, Chung Li District, Taoyuan City, Taiwan 32023, R.O.C. Tel: 886-3-265-5706. E-mail:
[email protected] Received: September 30, 2017 Accepted: October 25, 2017 Online Published: November 10, 2017 doi:10.5539/ijef.v9n12p101 URL: https://doi.org/10.5539/ijef.v9n12p101 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.