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Getting rid of a heavy shield: downsizing the in-house legal department?

Getting rid of a heavy shield: downsizing the in-house legal department? The purpose of this paper is to examine the effects of the number of lawsuits on firm performance and in-house legal department size. More importantly, this paper also aims to explore the interaction effect of in-house legal department size on the aforementioned lawsuit-performance relationship.Design/methodology/approachThe empirical analyses are performed by using secondary data. Structural equation modeling is employed in order to examine multiple structural relationships between the number of lawsuits, size of in-house legal department, and firm performance.FindingsThree key findings were generated: number of lawsuits has a significant detrimental effect on firm performance; number of lawsuits is positively associated with size of in-house legal departments; and size of in-house legal departments negatively moderates the relationship between number of lawsuits and firm performance.Practical implicationsThe results corroborate the harmfulness of lawsuits. On the one hand, a large number of lawsuits damage the firm’s financial performance directly; on the other hand, more lawsuits lead to enlarged in-house legal departments which further aggravate the negative effects of lawsuits on firm performance. These results suggest that firms should spend more effort in properly managing legal departments.Originality/valueThis paper contributes to the literature by empirically examining the economic impacts of lawsuits on firm performance. Moreover, it also explored the notion that having a large size of in-house legal department does not mitigate, but aggravates the harmfulness of lawsuits on firm performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Journal of Business Emerald Publishing

Getting rid of a heavy shield: downsizing the in-house legal department?

Alvarado-Vargas, Marcelo J.; Zou, Qi
American Journal of Business , Volume 33 (1/2): 16 – May 23, 2018
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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1935-5181
DOI
10.1108/ajb-08-2017-0022
Publisher site
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Abstract

The purpose of this paper is to examine the effects of the number of lawsuits on firm performance and in-house legal department size. More importantly, this paper also aims to explore the interaction effect of in-house legal department size on the aforementioned lawsuit-performance relationship.Design/methodology/approachThe empirical analyses are performed by using secondary data. Structural equation modeling is employed in order to examine multiple structural relationships between the number of lawsuits, size of in-house legal department, and firm performance.FindingsThree key findings were generated: number of lawsuits has a significant detrimental effect on firm performance; number of lawsuits is positively associated with size of in-house legal departments; and size of in-house legal departments negatively moderates the relationship between number of lawsuits and firm performance.Practical implicationsThe results corroborate the harmfulness of lawsuits. On the one hand, a large number of lawsuits damage the firm’s financial performance directly; on the other hand, more lawsuits lead to enlarged in-house legal departments which further aggravate the negative effects of lawsuits on firm performance. These results suggest that firms should spend more effort in properly managing legal departments.Originality/valueThis paper contributes to the literature by empirically examining the economic impacts of lawsuits on firm performance. Moreover, it also explored the notion that having a large size of in-house legal department does not mitigate, but aggravates the harmfulness of lawsuits on firm performance.

Journal

American Journal of Business – Emerald Publishing

Published: May 23, 2018

Keywords: Downsizing; Financial performance; Lawsuits; Legal department size

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