Intellectual capital, liquidity, and bankruptcy likelihood

• Author: A. A. Anvary Rostamy,M. H. Ranjbar,K. Moradi Shahdadi,S. J. Sadeghi Sharif
• Date: 01 October 2020
• DOI: http://doi.org/10.1002/jcaf.22460
• Published date: 01 October 2020

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Intellectual capital, liquidity, and bankruptcy likelihood

K. Moradi Shahdadi

1

| A. A. Anvary Rostamy

2

| S. J. Sadeghi Sharif

3

|

M. H. Ranjbar

4

1

Department of Financial Management,

UAE Branch, Islamic Azad University,

Dubai, United Arab Emirates

2

Tarbiat Modares University, Tehran, Iran

3

Faculty of Management & Accounting,

Shahid Beheshti University, Tehran, Iran

4

Faculty of Management & Accounting,

Bandar Abbas Branch, Islamic Azad

University, Bandar Abbas, Iran

Correspondence

A. A. Rostamy, No 16, Rahnama Chitsaz,

Saidi St. Shahid Dr Lavasani Ave.,

Management Study & Technology

Development, Tarbiat Modares

University, Tehran 1954613953, Iran.

Email: anvary@modares.ac.ir

Abstract

This study investigates the impacts of intellectual capital on the liquidity of

assets and stocks and the bankruptcy likelihood. Multivariate regression

models with combined data used to test the hypotheses. Using a sample of

147 companies listed on the Tehran Stock Exchange during 2010–2017, the

results indicate that intellectual capital has a positive effect on the liquidity of

assets and the liquidity of stocks, and that it has an inverse relation with the

bankruptcy likelihood. Moreover, we found that the liquidity of assets has a

negative effect on the bankruptcy likelihood. However, the liquidity of stocks

has no significant effect on the bankruptcy likelihood. In general, the findings

of this study provide evidence of the effective role of intellectual capital in

improving the liquidity of assets and the impacts of both the intellectual capi-

tal and the liquidity on reducing the bankruptcy likelihood. This study pro-

vides evidence of the prominent role of intellectual capital in the intelligent

management of corporate liquidity and reducing the likelihood of bankruptcy.

KEYWORDS

bankruptcy likelihood, intellectual capital, liquidity of assets, liquidity of stocks

1|INTRODUCTION

In today's competitive business environment, intellectual

capital (IC) plays a prominent role in sustaining and

achieving the competitive advantage of firms (Draghici,

2013). IC is an integral part of value creation process in

all firms (Ashton, 2005). It transforms the limited

resources of firms into value. Although financial state-

ments recognize tangible and financial assets, they are

still unable to reflect the value creation of IC. Because

of the weaknesses of the financial statements, measur-

ing and reporting IC and its components are viewed an

important part of the business-reporting model.

Companies with more IC are expected to have a bet-

ter liquidity management system. Moreover, they are also

expected to have a better risk management system and

less likely to go bankrupt. In general, liquidity can be

attributed to the ability to buy and sell an asset at a high

rate, low cost and low price effect. The issue of liquidity

has been a determining factor in stock returns since the

mid-1980s. One reason for the importance of liquidity is

that some investors may quickly need their investment

funds, in which case the liquidity strength of the assets

and stocks can be significant. The high liquidity of assets

and stocks enables companies to withstand bankruptcy

and reduce bankruptcy likelihood.

Bankruptcy occurs when firms are unable to meet

their obligations to creditors and other parties because of

their liquidity problems. Bankruptcy is a process in

which creditors request their claims from individuals or

firms unable to fulfill their obligations to them through

the judiciary. Bankruptcy has hugely detrimental effects

on all stakeholders in firms, society, and the country

(Altman, 1968). That is why if one can find out about

bankruptcy likelihood before it actually happens, it will

be possible to reduce or even prevent the destructive

Received: 2 May 2020 Revised: 20 June 2020 Accepted: 25 June 2020

DOI: 10.1002/jcaf.22460

J Corp Acct Fin. 2020;31:21–32. wileyonlinelibrary.com/journal/jcaf © 2020 Wiley Periodicals LLC 21