May intellectual capital and corporate governance reduce the probability of financial distress?

Resumen

Intellectual capital is a resource that, if optimized, will prevent the company from financial distress. By strategically investing in both intellectual and physical capital, companies can enhance their financial performance through optimal resource utilization. Therefore, this study aimed to investigate the impact of intellectual capital, capital structure, and corporate governance on mitigating financial distress and financial ratios as an early warning system. The sample consisted of financial sector companies in Indonesia from 2012 to 2022, and a binary regression model was used to estimate potential predictor variables. It was found that IC by proxy, human resources, customer, and organizational capital tends to improve the company performance, mitigating financial distress. A capital structure featuring extended maturity and high debt costs elevates the risk of financial distress. It was also discovered that companies with good governance tend to reduce agency costs, preventing organizations from bankruptcy. Financial ratios can serve as early indicators of impending capital distress, potentially leading to bankruptcy.