The literature on endogenous leverage until now shows how an increase in volatility reduces leverage. However, in order to explain procyclical leverage it assumes that bad news increases volatility. This paper explains for the first time why bad news are associated with high volatility. We show that, in a model with endogenous leverage and heterogenous beliefs, most agents have the incentive to...

_____________________________________________________________________________ Abstract: Significant increases in the level of target leverage have been previously documented, following unsuccessful takeover attempts. Increased leverage may signal managerial commitment to improved performance, suggesting that corporate performance and leverage should be positively related. If, however, the incre...

the management of the firms with the high incremental debt usually has more incentives to satisfy the creditors via the earning management. of course, the demand of annually auditing reports by professional auditing institutions that is one of the provider's (creditor's) conditions, cause to management face chief limitations and forbiddances in the field of earning management. accordi...