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.

In this paper, we investigate the relationship between external auditor characteristics and the likelihood of bankruptcy. Using a sample of US public companies, we study whether the auditor attributes are associated with default. We also test whether the inclusion of such attributes in bankruptcy prediction models improves their predictive ability. We find that firms audited by industry expert auditors, by large audit firms and by long-tenured auditors are less likely to default. Firms with higher audit fees are more likely to default. Our results also show that the inclusion of auditor attributes significantly increases the predictive ability of bankruptcy prediction models. This paper contributes to the literature on auditing and on bankruptcy prediction. Our results suggest that the auditors' attributes can provide predictive signals of default risk and that external audit can play a relevant role in financial distress early warning. Our study also suggest that bankruptcy prediction models can become more effective if complemented with audit data. Our results are of interest for market participants, auditors, regulating authorities, banks and other financial institutions interested in credit risk assessment.

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