We examine whether the effect of overvalued equity on the auditor’s audit fees and audit hours in audit work caused by greater audit risk. Overvalued equity provides a strong incentive for managers to report earnings upwards that do not disappoint the market (Jensen, 2005). That is, Jensen’s (2005) agency cost theory of overvalued equity argues that managers will engage in earnings manipulation activities in an attempt to sustain equity overvaluation. Prior research finds that more highly overvalued firms engage in more aggressive earnings management including discretionary accrual, real transactions management, and more egregious GAAP violations than less overvalued firms (e.g., Chi and Gupta, 2009; Madhogarhia et al., 2009; Houmes and Skantz, 2010; Badertscher, 2011; Sawicki and Shrestha, 2012; Coulton et al., 2015 etc.). Prior study also shows that auditors charge higher audit fees for clients posing increased audit risks because of equity overvaluation (Habib et al., 2013). We extend the prior research to include audit fees as well as audit hours. Furthermore we use more various proxies for overvalued equity (i.e., PER, PBR, PCR, PFCFR etc.) than the prior research. For this analysis, we identify overvalued equity (hereafter OVE) is an indicator variable equal to 1 if the firm has been in the top quintile of PER, PBR, PCR, and PFCFR in year t-1 in audit fees model (or in year t in audit hours model), and 0 otherwise, respectively. Our sample of observations covers KOSPI and KOSDAQ listed firms with available data in non-financial industries with fiscal year-end in December from 2004 to 2017 (based on the dependent variable). Our empirical results reveal the following. Frist, after controlling for several factors that affect audit fees identified in prior literature, we find that the positive and significant association between audit fees and overvaluation proxies for the PER, PBR, PCR, and PFCFR measures. Second, after controlling for several factors that affect audit hours identified in prior literature, we find that the positive and significant association between audit hours and overvaluation proxies for the PER, PBR, and PFCFR measures but not for the PCR. More importantly, there is a clear relation between audit fees and/or hours and overvaluation proxies for the PER, PBR, and PFCFR measures. We also measure overvaluation using the approach of Rhodes-Kropf et al. (2005) and the results are qualitatively similar. Third, in several sensitivity tests, we find these results qualitatively similar to that of prior work. Fourth, when we divided the sample into KOSPI and KOSDAQ listed firms, or when we partition the sample into pre- and post-IFRS adoption period, our results remain qualitatively similar. However, when we partition the sample into Big 4 auditors and non-Big 4 auditors, we find that the positive relation between audit fees and/or hours and overvaluation proxies is more pronounced for Big 4 auditors. Lastly, the positive association between overvalued equity and audit risk that this relationship is more pronounced for firms prone to the higher agency costs (i.e., the largest shareholder’s holdings). In summary, our results are consistent with the hypothesized positive association between audit fees and/or audit hours and overvaluation proxies. Thus, our results provide evidence consistent with the hypotheses that auditors do consider clients’ audit risks emanating from overvalued equities, and incorporate that risk into audit pricing as well as auditors also exert additional audit effort in auditing financial reporting quality of firms that have been identified as overvalued equity. Therefore, our results is consistent with Jensen (2005), who argues that firms will seek to prolong the overvaluation where possible. This is, our empirical evidence supports Jensen’s agency theory of overvalued equity, which increased audit risk perceived by the auditor’s view motivates the auditor to charge higher audit fees and expend greater effort. The evidence supports this hypothesis. Prior research has found that managers of overvalued firms engage in subsequent incomeincreasing earnings management to sustain overvaluation. However, there exists scant empirical evidence on auditors’ response to additional risks posed by equity overvaluation. Moreover, there seldom exists prior study examining the relation between audit risk and overvaluation equity using Korean data. Therefore, our findings in this study contributes to the existing literature by considering auditors’ response to equity overvaluation. In this respect, this study contributes to the audit-related literature. In addition, these findings have implications for investors, practitioners, regulators and provide avenues for future academic research.