Recently the Korean government announced its plan to levy on excessive retained earnings of companies, which in turn has provoked a storm of protest. Taxes levied on excessive retained earnings were introduced to level the playing field between shareholders of unlisted companies and those of listed companies in advanced countries. On the other hand, the intention of excessive retained earnings taxes in Korea is for the purpose of the economic vitalization. This tax policy of the government reflects the perception that accumulating earnings within companies hinders the growth of companies and furthermore the growth of the economy as a whole. However, whether accumulating earnings within firms works for or against firm value depends upon growth opportunities that firms have. Firms with high growth opportunities can use internal reserves to finance profitable projects, which in turn will increase firm value. However, firms with little or no growth opportunity may use internal reserves for investment projects that yield no profit or even destroy firm value (i.e., overinvestment problems). Thus, the effect of retained earnings on firm value is likely to depend on firms' growth opportunities. Nevertheless, we are unaware of any study that examines this issue and therefore our study fills the gap by investigating the relationship between retained earnings and firm value conditioned on firms' growth opportunities. Specifically, this study examines whether excessive retained earnings in firms with low growth opportunities negatively affect firm value. Furthermore, we examine whether high dividend payouts, long-term debt financing, and monitoring of foreign institutional investors mitigate agency costs arising from excessive retained earnings in firms with low growth opportunities. Using 16,724 firm-years from the period of 2000-2013, we find that firms' retained earnings are positively related to firm value. However, this positive relationship between retained earnings and firm value significantly declines for firms with low growth opportunities. These results are consistent with the assertion that excessive retained earnings in firms with low growth opportunities have the potential to generate overinvestment problems. The results are robust for both KSE and Kosdaq market firms. The results also reveal that high dividend payouts and foreign investors mitigate overinvestment problems for firms with low growth opportunities. However, debt financing does not reduce the agency costs related to excessive retained earnings in firms with low growth opportunities. Our results suggest that firms' growth opportunities must be taken into consideration when the government introduces policies concerning retained earnings.