Extant auditing research typically shows a negative impact of professional and educational ties on audit quality. The strength of weak ties (SWT) theory in economic sociology (Granovetter, 1973), however, implies a positive impact of social networks on audit quality. The SWT theory shows that weak ties (acquaintances) are more effective as information diffusion channels than strong ties (close friends) because the former are more numerous and likely to bridge distant cliques. Thus, broad social ties between the communities where the auditor and client are located can benefit auditing through weak ties. Using a community-level database of social connectedness developed by Facebook, we find that social connectedness facilitates auditor-client relationship formations. We show that auditors...[ Read more ]

Extant auditing research typically shows a negative impact of professional and educational ties on audit quality. The strength of weak ties (SWT) theory in economic sociology (Granovetter, 1973), however, implies a positive impact of social networks on audit quality. The SWT theory shows that weak ties (acquaintances) are more effective as information diffusion channels than strong ties (close friends) because the former are more numerous and likely to bridge distant cliques. Thus, broad social ties between the communities where the auditor and client are located can benefit auditing through weak ties. Using a community-level database of social connectedness developed by Facebook, we find that social connectedness facilitates auditor-client relationship formations. We show that auditors going-concern opinions are less frequent but more accurate when they have higher social connectedness to their clients. We further find that the clients with higher social connectedness to their auditors report lower discretionary accruals. The effects on going-concern opinions and discretionary accruals are more pronounced when the auditors are non-big 4 and when the clients have lower analyst coverage. We also find that the clients with higher social connectedness to their auditors pay lower audit fees. Collectively, our results support that social ties have positive effects on auditing through weak ties as information conduits.

Key Words— social networks, audit quality, auditor-client relationships, strength of weak ties theory