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...

We hypothesize that high stock price levels impede informed trading on the stocks and reduce price informativeness. This is because uninformed trading is needed to facilitate informed trading, and high stock prices may impose budget constraints on uninformed investors. Indeed, we find, for...

Firms can change their outstanding shares to manage their stock price levels. Those with lower stock prices tend to attract more speculative trading, which causes higher price volatility and may force their managers to excessively focus on short-term earnings at the expense of R&D and other...