Does intellectual capital help predict bankruptcy?
Abstract
Purpose
The purpose of this paper is to explore whether intellectual capital affects the probability that a particular firm will default. The authors also test whether including intellectual capital performance in bankruptcy prediction models improves their predictive ability.
Design/methodology/approach
Using a sample of US public companies from the period stretching from 1985 to 2015, the authors test whether intellectual capital performance reduces the probability of bankruptcy. The authors use the VAIC as an aggregate measure of corporate intellectual capital performance.
Findings
The findings show that the intellectual capital performance is negatively associated with the probability of default. The findings also indicate that the bankruptcy prediction models that include intellectual capital have a superior predictive ability over the standard models.
Research limitations/implications
This paper contributes to prior research on intellectual capital and firm performance. To the best of the knowledge, this is the first study to show that the benefits of intellectual capital extend from superior performance to long-term financial stability. The research can also contribute to bankruptcy studies. By using a time frame covering decades, the findings suggest that intellectual capital performance measures can be included in bankruptcy prediction models and can effectively complement traditional performance measures.
Originality/value
This paper highlights that intellectual capital is associated with long-term financial stability and a lower bankruptcy risk. Firms realising the potential of their intellectual capital can produce a virtuous circle between higher performance and greater financial stability.
Keywords
Acknowledgements
The authors would like to thank the Editor-in-Chief Rory L Chase. The authors gratefully acknowledge the insights and comments by two anonymous reviewers. The authors thank the reviewers and the participants to the SIDREA workshop in Pisa (Italy), the 12th interdisciplinary workshop on intangibles, intellectual capital and extra-financial information in St Petersburg (Russia) and the VIII Financial Reporting Workshop in Parma (Italy). The authors are also grateful to Professor John Dumay (Associate Professor of Accounting, Macquarie University), Dr Emilio Passetti (Lecturer in Accounting, Catholic University of Milan) and Professor Marco Giuliani (Associate Professor of Accounting, Università Politecnica delle Marche) for their kind feedback and comments.
Citation
Cenciarelli, V.G., Greco, G. and Allegrini, M. (2018), "Does intellectual capital help predict bankruptcy?", Journal of Intellectual Capital, Vol. 19 No. 2, pp. 321-337. https://doi.org/10.1108/JIC-03-2017-0047
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited