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Bankruptcy fees predicted from a regression analysis, and scale effects

A professor and a researcher collected court orders for professional fees in 101 bankruptcy cases and performed a regression analysis that unraveled the factors that went into the bankruptcy judges’ awards of fees. The article about this study, in ABA J., Vol. 95, Jan. 2009 at 12, mentions such factors as the bankrupt’s assets, the duration of the case, the length of docket entries, and the number of professionals. The statistical tool determined which factors made the most difference in the fees awarded and their relative contributions.

Multiple regression has and could shed light on many aspects of law department management (See my post of Aug. 14, 2005: regression analysis; Feb. 4, 2008: regression analysis of customer arbitrations; Aug. 27, 2005: litigation application; Feb. 12, 2008: make-buy efficiency curve; May 11, 2008 #2: correlation squared and the F-statistic; and June 26, 2008: lawyer experience against staffing levels and spend.).

The research, co-authored by Joseph Doherty (UCLA Law School’s Empirical Research Group), also confirmed a scale effect in bankruptcy fee awards: fees paid out end up being a declining percentage of the assets of the reorganized company as the assets grow larger. Perhaps the decline occurs for reasons that are similar to those that explain the decline in total legal spending as a percentage of revenue as companies grow. Reasons for the percentage shrinkage appear in my article in Legal Times, Jan. 28, 2008 (See my post of Feb. 6, 2008: decline of TLS with increased size.). The similarity of assets to revenue and professional fees to outside counsel fees seems plausible.

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