The prior researches focus to observe the financial characteristics (FC) to justify financial distress of firm. However, their accounting numbers that represent the FC are distorted due to earnings management, using these accounting information as the basis of study, its result is unreliable. This study is trying to find the key factors of the corporation suffering financial distress by analyzing if the path effects exist among the corporate governance (CG), earnings management (EM) and FC, and interpret their relation to know which one is the cause or the effect and further understand distressed firms manipulate behavior of the earnings and FC, simultaneously may observe the role of CG. This study sampled 59 corporations with financial distress since 1998 to 2006 and used Simple Random Sampling to sample 59 healthy corporations as a control sample to examines the cross-group differences in path effects. First of all, We examines the associations, between CG and EM, and CG and FC. Second, We use path analysis to measure the mediate (indirect) effects of EM between CG and FC, and the mediate (indirect) effects of FC between CG and EM. The result shows that EM does have mediate effect not only to CG but also FC and being negative effect. Furthermore, CG have positive direct effects to EM, more the strength of CG, then more the level of EM and the reporting FC to get better. However, in fact, it is due to the manipulation by the executives, it proved that financially distressed firms and healthy firms, the corporate governance mechanism can not prevent the loophole of the law or fraud and financially distressed firms compares to healthy firms their manipulate earnings are more significant. We suggest that, to find out the origin of each corporation financial distress, we should examine the corporate governance mechanism of individual corporation at first instead of checking the FC and not only analysis the financial characteristic (ratio) after manipulate earnings.