# Employee education, labor protection intensity and auditor risk perception

## TL;DR

This study shows that highly educated employees can lower audit fees, but labor protection laws reduce this effect, especially in less marketized and less Confucian regions.

## Contribution

The paper introduces employee education as a new factor influencing auditor risk perception and audit fees in Chinese companies.

## Key findings

- Highly educated employees are associated with lower audit fees.
- The Labor Protection Law weakens the effect of employee education on audit fees.
- Employee education has a stronger impact in regions with low marketization and weak Confucian culture.

## Abstract

Prior literature finds senior executives can influence auditor decision making. However, few studies have discussed the impact of employee’s personal characteristics. Our research aims to fill the above research gaps by examining the impact of employee level education on audit costs. Taking A-share listed companies in Shanghai and Shenzhen from 2006 to 2021 as the research object, this paper examines the impact of employee education on audit fees. It is found that highly educated employees can effectively reduce the audit fees borne by the company, but the implementation of the Labor Protection Law weakens this inhibitory effect. In the case of low marketization level and weak Confucian culture intensity, employee education level has a more significant inhibitory effect on audit fees of listed companies. This study provides a basis for empirical research on the impact of employee attributes on auditor decision making, provides a new research perspective on the impact of labor protection law at the corporate micro level, and enriches the theoretical research on corporate governance rooted in traditional Chinese culture. We contribute to the practice that implications for evaluating the effectiveness of adopting labor protection.