In this paper, we explore whether intellectual capital performance can help predict bankruptcy. Using a sample of US public companies in the period 1985-2015, we test whether the intellectual capital performance reduces the probability of default. We also test whether the inclusion of intellectual capital performance in bankruptcy prediction models improves their predictive ability. We use VAIC as an aggregate measure of corporate intellectual capital performance. Our findings show that the intellectual capital performance is negatively associated to the probability of default. Our findings also show that the bankruptcy prediction models including intellectual capital have superior predictive ability compared to standard models. To the best of our knowledge, this is the first study to explore how intellectual capital contributes to predict the firm’s probability of default. Our research highlights that intellectual capital reduces bankruptcy risk creating long-lasting value. Our research has also practical implications. Bankruptcy prediction by banks, investors and analysts can benefit from the consideration of intellectual capital.
Key-Words: Intellectual capital, bankruptcy prediction, intellectual capital, VAIC, future performance