I read years ago that there are more mutual funds on the stock exchanges than actual companies on the exchanges. So too many investors are chasing too few investments.
It’s always bothered me that corporations use surplus cash to keep buying more companies, making themselves bigger & bigger, rather than simply returning the earnings to stock holders. The only reason I’ve heard for that is the tax laws incentivize that behavior.
If gov’t wanted to ‘equalize’ incomes, they might consider tax laws that discourage mega-corporations & even mega-hedge funds. No more ‘too big to fail’ companies. But human beings being human, they’d probably screw that up, too.
A key factor.
However, stock prices go up much more for companies that grow rapidly, whether by reinvesting or acquisition, then for companies that simply distribute profits among shareholders.
This of course encourages investors to invest in companies that follow this course, and incentivizes executives, who are often compensated largely by increase in stock price.
Tax laws distort rational business practice, but so do other factors, such as investors expecting spectacular ROI. A company just doing business and distributing its profits will never produce spectacular ROI.