Financial ratio analysis of law firm's strategy and job satisfaction

Abstract

PurposeJob satisfaction along with a work–life balance of attorneys in law firms has become an important issue to the legal industry. This paper examines the relationship between strategic positioning of law firms and the job satisfaction of their associates.Design/methodology/approachUsing 1,108 firm year observations of US law firms from 2007 to 2016, this paper examines how a firm's strategic positioning affects the job satisfaction of its associates. The strategic positioning is measured with two financial ratios derived from modified DuPont analysis: revenue per lawyer (RPL) and leverage (LEV). To compare the level of associates' job satisfaction depending on law firms' RPL and LEV, this paper uses t-tests. In addition, this paper adopts OLS regression and simultaneous equations to examine the relation between law firms' strategic positioning and their associates' job satisfaction.FindingsThis paper shows that associates in the law firms with a high LEV strategy have lower job satisfaction because these firms provide a more demanding work environment than in the firms with a high RPL strategy.Originality/valueThis paper first documents empirical evidence that a firm's strategic positioning significantly influences job satisfaction of its employees, using data on the legal industry which is human-capital-intensive and is considered one of the sectors that provide the most notorious work environments.