200 © 2020 AESS Publications. All Rights Reserved. CORPORATE GOVERNANCE AND EARNINGS MANAGEMENT: EVIDENCE FROM LISTED FIRMS AT PALESTINE EXCHANGE Naser Abdelkarim 1+ Khaled Zuriqi 2 1,2 Arab American University, Palestine. (+ Corresponding author) ABSTRACT Article History Received: 8 November 2019 Revised: 12 December 2019 Accepted: 15 January 2020 Published: 3 March 2020 Keywords Corporate Governance Earnings management Governance principles Discretionary accruals The board of directors Board independence Board structure. JEL Classification: Financial economics. The agency problem gives an incentive to present corporate governance codes that help reduce the conflict of interest between company owners and managers. This study used corporate governance indicators to assess the relationship between CG and earnings management. Managers use earnings management to overstate or understate the figures to serve their own interests. Data were collected for the 33 sampled companies in this study from the annual reports of the listed companies at the Palestine stock exchange. The modified cross-sectional Jones model was used to define the value of earnings management. The independent variables (CG indicators) were board independence, board size, ownership concentration, CEO duality, and audit quality. In addition, to control variables to account for differences in size and performance of the firm, these variables are company size, return on asset and leverage. By using the regression model, a significant correlation between EM and size for the year 2015 and between EM and ownership concentration, size and return on assets for the year 2016 were found. The overall regression result showed that the model fits with the variable used. The R-squared (coefficient of determination) values showed that approximately 65% and 73% of the variability of earnings management was accounted for by the variables in the model. Contribution/ Originality: This study is one of very few studies to have investigated the relationship between corporate governance and earnings management practiced by Palestinian firms listed at the Palestine Stock Exchange. The findings of the study help explain this phenomenon in an emerging market, given the fact that the code of corporate governance is still relatively new and became effective in 2009. 1. INTRODUCTION 1.1. Background Corporate governance refers to the set of guidelines, practices, and actions that set to make sure that the company managers work to achieve the goal of the firm and make sure that managers work to maximize shareholders' wealth in an ethical manner (What is Corporate Governance, 2017). According to the organization for economic cooperation and development (OECD), corporate governance has six main principles: “1) Ensuring the basis for an effective corporate governance framework. 2) The rights and equitable treatment of shareholders and key ownership functions. 3) Institutional investors, stock markets, and other intermediaries; 4) The role of stakeholders. 5) Disclosure and transparency. 6) The responsibilities of the Asian Economic and Financial Review ISSN(e): 2222-6737 ISSN(p): 2305-2147 DOI: 10.18488/journal.aefr.2020.102.200.217 Vol. 10, No. 2, 200-217. © 2020 AESS Publications. All Rights Reserved. URL: www.aessweb.com