This research aims to determine to what extend earnings management influence the shareholders’ value creation and to examine the relation between shareholder’s sensitivity and earnings management. The originality of this research consists in the fact that the researchers provide an overview of the earnings management and its effect of the shareholder’s sensitivity using the shareholders’ value creation as a mediator for that relation. The researchers conducted the research through presenting literature review about the variables of the research and used a secondary data to investigate the relation between the variables of the research through constructing a regression model to fit within the Pharmaceutical companies that are listed in the Egyptian exchange market for years 2006-2013. To verify the research hypotheses, the Structure Equation Modeling and panel data analysis are used. The results indicate that there is an association between earnings management and shareholders’ value creation and shows that the association between the shareholders’ value creation and investor’s sensitivity are strong. The results also indicate that there is a negative association between the earnings management and the investor sensitivity. The results are very logic since not all the investors are those knowledgeable of the earnings management measurements tools. The investors will be more sensitive toward the low earnings management practice by management
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