Does having a hedge fund as a substantial shareholder improve corporate governance? Unlike other institutional investors, hedge funds are not afraid to (a) take large stakes in companies and (b) be activist in their ownership i.e., they attempt to exert influence on CEOs. A recent court case brought against Apple by one of its shareholders, Greenlight Capital, a hedge fund run by David Einhorn, nicely illustrates the way in which hedge funds try to influence companies in which they have stakes. Greenlight Capital is trying to get Apple to return some of its $137 billion cash pile (two-thirds of its balance sheet) to shareholders. Apple has been hoarding cash since 1995 and in 2012 paid its first dividend in 17 years. Apple has by far the largest cash pile of any corporation in the world - click here.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of