This study investigates the effect of overvalued equity (OVE) on managers’ real activities manipulate behavior. We also examine the influence of audit committees on the aforementioned relationship between overvalued equity and real earnings management (REM). Data were collected from Taiwanese publicly traded firms on the Taiwan Stock Exchange and the Gre Tai Securities Market between 2008 and 2014. The empirical results show that there is a positive and significant association between OVE and REM. That is, those overvalued companies are more likely to use real earnings management. However, we couldn’t find any evidence on the design of audit committees to mitigate the relationship between overvalued equity and real earnings management.