Who Are the Best Law Firms?

If you have ever wondered who the best law firms are (which lawyer hasn’t?), have a look at our new IPO-based ranking. Given the recent scandals in rankings in law, any new ranking methodology must be sensitive to concerns about the appropriateness of the characteristics used to rank a participant and the incentives a ranking provides to those being ranked. My co-authors—Tom Bates at ASU and Roc Lv at ANU/Jiangxi University—and I present a method of ranking law firms that addresses these concerns. 

In particular, US News rankings of law schools have received criticism for focusing too much on inputs, such as student quality or acceptance rates, instead of student outcomes like job quality and success in public interest careers. Many schools now refuse to submit data or participate in the annual ranking.

In ranking law firms, we note similar concerns exist with other methodologies. For example, most law firm rankings use inputs like law firm revenue, profit, or other size-related measures to proxy for quality and reputation. These measures provide little insight into the quality of the output of the law firms.

Our rankings focus on the most critical outcomes for clients issuing securities: litigation rates, disclosure, pricing, and legal costs. We propose that this output-focused ranking methodology improves upon extant methods. Rather than ranking law firms by the resources they bring to clients during an IPO, we test if they improve client outcomes, such as reducing the likelihood of litigation, relative to other law firms.  

Our method also limits the poor incentives inherent in other rankings. In law schools, admissions may focus on merit-based scholarships to attract students that improve the school’s ranking with increases in average GPA or LSAT score, potentially at the expense of students that excel in other areas. Similarly, empirical evidence in the financial economics literature reveals that investment banks offer benefits to some clients to influence ‘league table’ rankings. By focusing on the most relevant IPO outcomes rather than inputs, our law firm ranking makes it harder for those being ranked to ‘game the system’ without actually producing better results. For example, a law firm may prefer to work with ‘better’ low-risk clients that aid with their litigation rank. Yet, the law firm may not be providing superior outcomes for the client.

Our model is statistically complex but offers many benefits over rankings based on simple quality measures. We use multivariate fixed-effect models with a novel selection correction from a matching model. This approach allows us to control for confounding characteristics and focus on how each law firm performs across different client types. Correcting for client traits assures us that the ranking is based on a law firm’s skill rather than good timing or choosing better clients with a lower risk of getting sued.

Looking across clients and across time for each law firm provides more robust evidence that our measure of law firm quality is not simply temporary or statistical noise. However, it also provides a significant limitation. This historical ranking needs several years of data for each law firm on a US exchange, and many of our best-ranked firms have now merged into larger partnerships. While we cannot provide annual rankings, we can identify those law firms with a solid history of benefitting their clients.

We also validate the rankings by studying the correlation of the litigation ranking with other rankings based on pricing, prospectus disclosures, and legal fees. For example, a law firm’s ability to limit litigation is correlated with prospectus disclosure quality, suggesting better law firms limit litigation through superior disclosures. The clients of law firms with lower litigation rates also receive better pricing in their IPOs, which makes the law firm a hugely valuable investment for the issuer. We also find correlations between reduced litigation and legal fees, suggesting talented law firms can charge more.

Overall, our innovations can provide some guidance on law firm quality and on how to adjust other rankings. Despite the limitations and criticisms of rankings in law, perhaps the solution is to improve the current system instead of withdrawing from it altogether.

A top-ten preview of our ranking is below, and the full paper is available here.

*Top-ranked law firms are associated with less disclosure-related litigation.

Jordan Neyland is an Associate Professor of Law at the Antonin Scalia Law School at George Mason University.