Distorted prices misguide managerial incentives and resource allocation. Distorted prices may occur when firms' stock prices are near their 52-week highs because investors tend to perceive the stocks as relatively overvalued and are reluctant to bid prices higher even if new information warrants...

Studies have documented that firms in competitive industries tend to invest inefficiently and suffer from booms and busts. We extend the literature by showing that high-sentiment signals from credit markets, an indication of easy money available, prompt firms in competitive industries to borrow...