<p>This study examines the role of employee representation on corporate boards in curbing financial misconduct. Using a sample of Chinese listed firms, we document a significant and robust negative correlation between the presence of employee directors and the incidence of financial misconduct. To establish causality, we employ a two-stage regression with instrumental variable analysis. Mechanism analyses suggest that risk-averse employee directors draw on their first-hand operational knowledge and board influence to enhance corporate transparency and restrain managerial risk-taking, thereby reducing both the opportunities and pressures for misconduct. Consistent with these mechanisms, employee directors with longer operational work experience or those serving on the audit committee are more effective in mitigating financial misconduct. Their disciplinary effect is particularly pronounced in cases that pose greater risks to employee interests, such as repeated offenses and financial statement misconduct, and in firms with weaker governance. Overall, our findings highlight the important governance role of employee directors as informed monitors, contributing to greater integrity in capital markets.</p>