Beta, a measure of risk for publicly traded companies, and law departments

Beta has been a traditional measure of risk, which companies use to estimate the cost of capital. A beta greater than one means that the company’s share price is likely to move in the same direction as the market but by a greater amount. The share price is more volatile than the market average. The larger a company’s beta, it is argued, the greater the returns to investors and hence the greater the cost of capital, according to the McKinsey Quarterly, 2006 No. 3 at 12 .

We might calculate something similar to a beta for law departments. If we had a large enough database, say 500 or more law departments, and metrics about their caseload and litigation spending, We might be able to show that a particular law department has more or less volatility than its peers in terms of managing the financial risks of lawsuits.

We welcome comments

Your email address will not be published. Required fields are marked *