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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.

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