EU corporate sustainability performance and qualified audit opinion: the role of audit committee independence

Purpose The purpose of this study is to examine the impact of corporate sustainability performance on the quality of financial reporting, proxied via the probability of external auditors, to offer a qualified audit opinion. Moreover, the impact of audit committee (AC) independence is considered as a mediating factor affecting the quality of sustainability performance and the opinion of external financial auditors. Design/methodology/approach This study is based on a sample of listed firms from 24 EU countries over the period 2003–2019, summing up to 144,317 firm-year observations. Panel logistic regression models were estimated. Findings Results indicated that firms with increased sustainability performance were less probable to receive a qualified audit opinion, suggesting that sustainability performance complements the quality of financial reporting. In addition, this negative association was significant for firms with above-average AC independence, verifying the mediating impact of firms’ governance structure on the quality of financial reporting. Originality/value This study quantifies a broader data set of sustainability information and uses a multi-country framework (24 EU countries), thus providing more concrete evidence on the issue, extending the study by Tuo et al. (2023). Also, this study responds to calls for more research on the mediating role of ACs made by Velte (2023) and Stuart et al. (2023) on the impact of sustainability performance on qualified audit opinion.