Researchers indicate that if the market value of the stock in a firm exceeds its true value, this overvaluation affects the managerial behaviors and corporation actions. Thus, for investigating the impact of equity overvaluation on consequent, income-increasing earnings management financial data of 60 listed companies were collected from Tehran Stock Exchange during 2006-2010. Consequently, regression analysis for testing correlation regressions was employed. Results of the study indicate that equity overvaluation had a positive and significant relationship with subsequent income-increasing earnings management. The results indicate that firm\\\'s management tended to support valuation errors to access the benefits of a rising stock price through discretionary accrual\\\'s manipulation, when stock would become overvalued by market.

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