The present study aims to investigate the effect of earning quality on cash holding level in the listed companies on the Tehran Stock Exchange (TSE). Francis et al.’s (2005) model employed in the current study in order to measure the earning quality (independent variable). The ratio of cash and marketable securities to the book value of total assets used as the dependent variable. 96 listed companies on the TSE during 2002-2010 investigated for testing the research hypotheses applying cumulative regression. The findings suggest a negative significant relationship between earning quality and liquidity level. In other words, the results indicate that increasing the earning quality would decrease the amount of liquidity level. Also, the results show that this negative relationship is stronger in small companies than that of the big companies listed in stock market.

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