The study aims to examine the effect of firm's liquidity on the quality of its financial reports.
This was inspired by several firms' failure after the recent financial crisis. This effects prevailed
even to the capital markets of developing countries as the Egyptian stock exchange. Where
Stakeholders lost their faith in the integrity of financial reporting process. These circumstances
affected firms differently. That intrigued the researcher to study the effect of firm specific
characteristic especially liquidity level on the quality of financial reporting in Egyptian firms.
Proper Liquidity level is a sign of the firm ability to cover its short term debt, also a sign for its
future solvency and hence better firms' viability. The Study uses simple multiple regression
model to investigate this relationship. The sample consists of 32 firms listed in the Egyptian
stock exchange for the years 2014 and 2015, where firm liquidity is measured quick ratio. While
quality of financial reports is measured by accounting conservatism, measured by MTB.
Financial leverage, profitability and company size were used as moderating variables affecting
the relationship in question. The relationship tested using regression analysis. The results reveals
significant positive relationship between at significance value (0.008) which is lower than the p
value. Also the results of correlation indicates significant relationship between firm's liquidity and
level of financial leverage and firm productivity respectively The results reveals that liquidity
level is a good predictor for quality of financial reporting in Egypt.