Research summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. We synthesize arguments from the behavioral theory of the firm, economic perspectives like agency theory, and the value‐creation versus value‐appropriation literatures to argue that the implications of cash for firm performance are context‐specific. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Managerial summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. While cash‐rich firms have higher performance on average, with those in the 75th percentile having a market‐to‐book value 15 percent higher than those in the 25th percentile, we find that the performance benefits of cash depend on the context. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Copyright © 2015 John Wiley & Sons, Ltd.

This paper studies how governance drives entrepreneurial orientation (EO) in small firms. We argue that founder status and ownership create powerful personal incentives for small firm CEOs to engage in behaviors that influence EO. Integrating stewardship theory and the principal‐principal branch of agency theory, we test our hypotheses on a sample of 339 Swedish firms, and find that CEO founder status is significantly and positively associated with EO, while CEO stock ownership significantly but negatively predicts EO. We additionally test two boundary conditions that show that the founder‐CEO's prior managerial experience in start‐up firms positively moderates the founder‐EO relationship, while contrary to expectations, CEO ownership diversification has no effect on the negative association between ownership and EO. Thus, our study adopts a corporate governance perspective to explain how variations in EO across small firms are driven by the goals and motivations of its leader. Our research also shows that in small, private firms the balance of power is tipped in favor of the CEO rather than the board of directors. Finally, we underline the importance of adopting alternative theoretical lens like stewardship and principal‐principal agency, given that traditional principal‐agent problems are largely mitigated in the small firm context.

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Management research has examined how signaling at the time of an initial public offering (IPO) certifies firm quality and helps address the adverse selection problem for uninformed investors. We add to this literature by proposing a typology of signals based on whether the signal involves upfront cash investments (default‐independent) or whether it is meant to be a credible non‐cash commitment to suffer negative consequences should the firm underperform (default‐contingent). We also argue that this definitional distinction highlights differences in the underlying characteristics of these signal types in terms of cost, certifiability, clarity, consistency, commitment, and visibility. Using underwriter reputation and patents as proxies for default‐independent signals, and director ownership and founder status as proxies for default‐contingent signals, we find that only default‐independent signals improve post‐IPO firm performance.