Audit committee social networks and audit opinion: a European analysis

Purpose This study investigates how audit committee members' positions in interorganizational social networks affect external auditors' judgments and the resulting audit opinion. Design/methodology/approach Drawing on signalling theory, directors' network centrality is conceptualized as a visible indicator of otherwise unobservable governance quality and access to specialized resources. Using data for 6,899 directors serving on the audit committees of 230 non-financial firms listed in eight European countries over 2005–2020, centrality measures (degree, eigenvector, betweenness and closeness) are computed for audit committee members and aggregated at the firm–year level. Logistic, probit, ordered logit and ordered probit models are then estimated to examine the association between these measures and the likelihood and severity of audit qualifications. Findings Results reveal that higher network centrality is systematically associated with a greater probability of unqualified opinions and less severe qualifications, particularly for degree and eigenvector centrality, as well as composite indices; this effect is stronger among low-leverage firms. These effects hold robustly across model specifications, placebo tests and lagged centrality measures. Originality/value By extending social network analysis to audit opinions in a multi-country European context, our findings demonstrate that audit committee connectivity serves as a governance signal incorporated by auditors, with novel implications for oversight effectiveness.