Conventional finance theory argues that the market's estimate of expected future cash flows and the risk associated with these cash flows are important factors in determining the market value of the firm. For a given estimate of firm value, the division into a particular combination of price per share and number of shares should not matter. However, casual observation indicates that stock prices cluster. In this dissertation, we investigate whether there are any economic or behavioral reasons that lead firms to choose a particular share price. We focus on two events where firms explicitly make a choice of the price level---share splits and initial public offers The first essay investigates share splits announced by mutual funds. We argue that in the case of mutual fund share splits, the usual explanations that have been advanced for common stock splits, i.e. signaling and liquidity, do not apply. The evidence suggests that like common stocks, mutual funds also split after a period of strong performance. This strong performance is not sustained in the post-split period. There is little evidence that the risk characteristics change after the split. However, relative to a matching fund, the splitting funds experience an increase in the inflow of new money in the quarter of the split and the subsequent two quarters. We also present evidence suggesting that a split aligns the post-split prices more closely with that prevailing in the industry. Overall, our results are consistent with small investors' exhibiting a preference for assets priced in a particular price range, and the price thereby affecting the marketability of financial assets The second essay investigates whether the choice of offer price in initial public offers of common stock is related to the short-term and long-term performance. Our main result is that underpricing in an IPO exhibits a U-shaped pattern in offer price. We also show that institutional ownership increases with offer price. Taken together, this evidence is consistent with the characterization of low priced IPOs as riskier investments where underpricing compensates investors for higher information costs; and higher-priced IPOs as targeted towards institutions where underpricing compensates the institutions for future monitoring costs
