1 Introduction

Many case studies have proven that institutions that are unable to keep up with developments in information technology will inevitably fail. Institutions adopting digital transformation projects and bearing huge costs do not necessarily mean their success. Many institutions are complaining about the futility of these projects or dissatisfaction. To solve this problem, there was a need to search for administrative approaches to make these projects successful. Perhaps the application of governance principles is one of the frameworks adopted by many institutions. These institutions implement a program for governance principles that provides a framework of best practices and controls that enable them to succeed in digital transformation projects. Hence, this study attempts to identify the impact of applying governance principles on digital transformation in Palestinian banks.

According [1] and [2] Commercial banks, being rooted in traditional practices, have long been at the forefront of embracing digitalization. With the rise of the digital economy, these banks are compelled to undergo digital transformation, whether proactively or reactively. This transformation process not only hastens the diversification of revenue streams and enables banks to stay competitive but also contributes to the establishment of enduring financial institutions. Concurrently, the digital evolution within banks is recognized for its role in enhancing their financial performance. Consequently, an inquiry arises: how does this digital transformation impact the efficiency of banks? Existing literature offers various perspectives in addressing this question.

Considering that the banking sector in Palestine is one of the most important financial sectors in the economy, the trend towards digital transformation leads to growth in the banking services sector. All theoretical and applied studies indicate that digital transformation achieves a distinctive and unique experience for customers in terms of optimal use of modern technology to improve operational processes and Developing the service provided, the real-time completion of transactions, and the provision of various banking services. Therefore, identifying the most important governance principles that help in the success of digital transformation is very important in maintaining the stability of the financial system and obtaining the best services.

The study seeks to reach many practical and theoretical results. It will also provide many recommendations that will benefit banks and departments related to the application of governance principles and other relevant parties in the work of banks. This will contribute to understanding and realizing the importance of identifying the most important governance principles that help in the process of making digital transformation a success in banks operating in Palestine.

2 Theoretical framework and hypotheses development

The stability of the financial system is closely linked to achieving stability in the banking system. Many reasons have destabilized this stability, including the globalization of financial markets and the emergence of many modern financial innovations that have led to reducing the feasibility or effectiveness of traditional tools. Therefore, banks seek to diversify the services provided by digital platforms, such as opening accounts and attracting new customers, as well as completing payment, purchase and transfer operations via the Internet and mobile phones. To facilitate the work of these platforms, banks sought to find new applications to communicate with customers directly to develop their electronic and digital services to keep pace with rapid developments. In the world of technology and the communications revolution that the economy is witnessing, traditional banking may disappear with a complete shift to digital banks [3] It is, therefore, necessary to draw up a strategy based on understanding the future of the digital revolution, in addition to developing a set of analysis tools linked to existing and new data sources and then linking them with processes related to decision-making centers so that we can develop a clear vision of the future of the banking industry, to achieve competition in the areas of services and innovation of new Financial Products [4]

Governance is considered one of the important modern tools and means that aim to ensure the stability of the financial system as a whole and the banking system in particular. Governance helps in reduce risks which supports the bank’s competitiveness, by maintaining the rules and principles for improving the accuracy and transparency of financial reports and stressing the application of ethics standards [5]. Governance is also crucial in reducing the cost of capital and attracting investments. Investors and capital owners prefer to invest in banks that have sound governance structures that ensure that they protect their money, serve their interests, and achieve a fair return on the assets they own [6]

Digital transformation does not only mean applying technology within the organization, but rather it is a complete comprehensive program that touches the organization and affects the way and method of its work internally, as well as how to provide services to the target audience, and harnessing modern technology and its applications and employing it optimally to develop its performance and enhance its competitive capabilities [7]. Emphasized that digital transformation in the banking sector is a continuous process that affects both the external and internal environment by redesigning internal processes and current methods. There are many reasons why digital transformation occurs, such as serving remote areas without physical branches, differentiating from competitors or reducing operating costs.

According to [8] the role of digitization in the banking sector has changed customer preferences and requirements. As a result, banks in Sweden are becoming more digitally oriented to meet their customers' new preferences and requirements. According to contingency theory, banks' new digital focus must be aligned with other factors in banks for them to function effectively. The study also shows that alignment at the bank contributed to increased satisfaction among digitally oriented customers. [9] adopted different IT governance tools in the French financial sector to support digital transformation. They concluded that managing digital transformation projects as IT projects does not adequately consider business needs and customer trends. Hence, management can be more complex due to the large number of participants in digital projects [3]. Indicated that digital transformation governance constitutes a clear path to facilitating business in a way that keeps pace with development and ensures a proportionate balance between stakeholders. This also helps in achieving the desired goals and creating promising opportunities [10]. Indicated that digital transformation involves the emergence of a new organizational identity, while IT-enabled organizational transformation involves strengthening the existing organizational identity.

The results of [11] indicated that electronic banking services reached 77%. This is positively related to the information technology governance applied by Gulf Cooperation Council banks. Accordingly, the study recommends that regulatory authorities encourage the banking sector to implement more E-banking tools and support banks through effective application of cybersecurity laws. Regarding internal governance, the study of [12] found that in light of the digital age, no bank can dispense with digital services strategies, as it is forced to adapt and transform operating processes, internal organization, business model, and governance through profound cultural changes in governance patterns to confront these new challenges [13] stated that companies with more mature IT governance have different mechanisms in preparing for the inevitable digital transformation [14]. Indicated that the process of governance must go through the digital transformation itself, making use of appropriate tools such as process mining or dynamic process modelling and simulation tools. The result is digital process governance is considered as an important foundation for successful digital transformation.

Relying on resource theory, [15] focused on the organization’s resources of all kinds, tangible and intangible, to face global challenges. It tries to give priority to the internal aspect of the organization in strategic analysis. The primary source of competitive advantage according to this theory is its internal characteristics. The difference between The performance of institutions is due to their provision of distinguished resources and the way of mixing and coordinating these resources [16] indicated that an institution’s resources include all assets, capabilities, organizational processes, characteristics related to the institution, information and knowledge, and resources are characterized by the possibility of control and control by the institution, and also enable it to develop and implement strategies that allow it to improve and develop its activity and performance.

Also, the theory of technological determinism [17] believes that society has become an information society, led by computers and technology. These technologies have caused revolutions in various aspects of life, including work, economics, politics, culture and art, and every change that occurs in human societies is due to the power of technological and communication means. This theory is also concerned with the impact of technology on The feeling, thinking, and behavior of individuals and the historical development of societies. In the current era, institutions have witnessed development and growth in the volume of their operations and work, which has resulted in a huge volume of transactions that must be implemented. Therefore, institutions must adopt modern mechanisms and standards, regulations and systems that help in the process of completing transactions. From this standpoint, the approach to implementing transformational governance is considered Digitalization in organizations is important to achieve the goals of resource dependence theory and technological determinism.

Previous studies confirm that digital transformation is not limited to the process of applying digital technology to enhance business performance; It is an organizational culture process that reaches the coordination of goals and values ​​with all parties that the organization deals with through digital technologiesTherefore, it is important to understand digital transformation and determine the extent of its success from the point of view of senior management. Given the above, previous studies and supporting theories explain the relationship that exists between the study variables. To set this general tone, this paper will investigate the principles of governance and their role in promoting digital transformation in Palestinian banks.

2.1 The study hypotheses can be formulated as follows

There is no statistically significant positive effect of Palestinian bank governance on digital transformation.

There is no statistically significant positive effect of the tasks of the board of directors in Palestinian banks on digital transformation.

There is no statistically significant positive effect of the board of directors’ practices and conflicts of interest on digital transformation.

There is no statistically significant positive effect of disclosure and transparency in Palestinian banks on digital transformation.

There is no statistically significant positive effect of risk management in Palestinian banks on digital transformation.

3 Study methodology

3.1 Study population and sample

This study relied on the descriptive analytical approach, where the studied phenomenon is carefully described and analyzed through the available information. The relationships between the dimensions of the phenomenon are also studied and a future outlook is provided based on the statistical results. The study population consisted of all employees of the Palestinian commercial and Islamic banks listed on the Palestine Stock Exchange, numbering 7 banks: Bank of Palestine, National Bank, Palestine Investment Bank, Al-Quds Bank, Arab Islamic Bank, Palestine Islamic Bank, and Al-Safa Bank. The study was conducted on a random sample of 1530 employees from those banks that make up the study population, and 750 questionnaires were retrieved for statistical analysis. Table 1 shows the distribution of members of the study population, and Table 2 shows the distribution of the study sample according to demographic variables.

Table 1 Distribution of community members for the year 2022
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Table 2 Distribution of the study sample according to demographic variables
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3.2 Study tool

In this study, the researcher used the questionnaire tool, which was developed to suit the purpose of the study. A five-point Likert scale was also used to give each answer relative importance. The validity and reliability of the tool was measured as follows:

3.2.1 Validity of the tool

To ensure external (apparent) validity, the study tool was presented to a group of specialized arbitrators. The arbitrators were asked to express their opinions on the paragraphs of the study tool in terms of the wording of the paragraphs and their suitability for the field in which they were placed. This can be achieved either by approving it, modifying its wording, deleting it due to its lack of importance, or adding new paragraphs. The opinion of the majority of the members of the arbitrator’s committee has been carefully considered in the arbitration process. Thus, the content validity of the questionnaire has been achieved. The study tool has become in its final form. As for internal validity (internal consistency), correlation coefficients (Pearson) were calculated between each item and its axis for the five axes in the study tool, and the results appear in Table 3.

Table 3 Correlation coefficient between each item of the axis and the total score of the axis
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Structural validity is considered one of the measures of the tool’s validity, which measures the extent to which the goals you want are achieved. The tool can be accessed, and it shows the extent to which each axis of the study relates to the total score of the questionnaire items.

The previous table shows the internal validity of the five-axis items of the study tool. The table shows that all paragraphs contain correlation coefficients with positive, moderate to high values, which indicates a positive relationship between the paragraphs and the axes of the study. All paragraphs also show a level of significant statistical significance of 0.05 or less. This indicates that there is a strong statistical link between the paragraphs and the axes of the study. Therefore, the questionnaire items can be considered internally honest, as they reliably and consistently reflect the principles of governance and digital transformation in the Palestinian banks under study.

Table 4 shows that all correlation coefficients in all axes of the questionnaire are statistically significant at a significance level of α = 0.05. Thus, all axes of the questionnaire are considered true to what they were designed to measure.

Table 4 Correlation coefficient between the score of each axis of the questionnaire and the total score of the questionnaire
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3.2.2 Tool stability

The reliability coefficient of the tool was extracted using Cronbach’s Alpha equation shown in Table 5. This table shows the reliability coefficients of the study tool and its fields.

Table 5 Cronbach’s alpha coefficient
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It is clear from the previous table that the value of Cronbach's alpha coefficient was high for each axis. The alpha coefficient value for all questionnaire items was (0.827). The reliability of the questionnaire areas ranges between (0.827–0.863) with the overall reliability reaching 0.909. This makes it applicable and suitable for scientific research, as is recommended for economic and humanitarian studies.

4 Testing hypotheses and interpreting results

To discuss the results of the four basic hypotheses, a Pearson correlation coefficient test was conducted to examine the relationship between the basic axes of the study, relying on the significance level of 0.05 to study its effect on the axis that represents the dependent variable in the study, which is digital transformation (Table 6).

Table 6 Pearson correlation coefficient
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The previous table indicates that the “principle of the board of directors’ duties” has a strong and significant impact on “digital transformation” with a probability value (p-value) of 0.00 and a correlation of 0.440**. While “the principle of board practices and conflicts of interest” has a weak and significant impact on “digital transformation.” "The probability value (p-value) is 0.02 and the correlation is 0.243*. Also, the “principle of disclosure and transparency” has a weak and significant effect on “digital transformation” with a probability value (p-value) of 0.01 and a correlation of 0.270*. The “Risk Management Principle” has a strong and significant impact on “Digital Transformation” with a probability value (p-value) of 0.00 and a correlation of 0.548**. According to these results, it can be said that the fourth axis, “The principle of risk management,” is the most influential and related to digital transformation in banks operating in Palestine.

Table 7 also shows the results of the linear regression analysis of the study’s hypotheses regarding the impact of the four governance principles on electronic transformation in Palestinian banks as suggested by [8]

Table 7 Results of linear regression analysis
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It can be noted from the previous table that the influence factor P-value for the independent factors reached 0.000, which is statistically significant as it is less than 0.05, and according to the values ​​of β. The model suggests a positive relationship between each of these (the principle of the board of directors’ tasks, board practices and conflicts of interest, disclosure and transparency, risk management, and “Digital Transformation). As for the value of R-squared, it reached 30%. This indicates that 30% of the variance in digital transformation can be explained through governance, and the variance inflation factor VIF reached 1.000 indicating that there is no problem of linear interference in the relationship between the independent variables in the model. The F value indicates that the model as a whole is statistically significant, and therefore we accept the alternative hypothesis, as there is a statistically significant positive effect of the governance of Palestinian banks on digital transformation as the result of [10].

5 Conclusions, recommendations and limitations

The study aims to demonstrate the impact of applying governance principles on digital transformation in Palestinian banks. By studying four axes that represent governance principles as an independent variable, which are the principle of the board of directors’ duties, the principle of board practices and conflicts of interest, the principle of disclosure and transparency, and the principle of risk management in addition to its impact on the dependent variable, which is digital transformation. This has been achieved using a questionnaire distributed to 750 employees of Palestinian banks listed on the Palestine Stock Exchange.

The results concluded that there is a clear role for the principles of governance combined in supporting the digital transformation process. The results confirmed the keenness of the boards of directors to discuss the commitment of bank management to implement the governance provisions and regulations issued by the Palestine Monetary Authority. Its effectiveness in monitoring the integrity and transparency of public reports and the soundness of the applied accounting and financial systems, contributes to preserving the interests of relevant parties, in addition to developing and approving the necessary policies for risk management. Applying governance principles helps reduce the degree of risk to which these banks may be exposed. It also provides oversight of risk management and control and confirms the adequacy of controls to achieve objectives and preserve the value of banks.

Digital transformation helps in the presence of digital banking services that suit the needs and requirements of customers and their financial capabilities. This leads to increased customer confidence in the performance of banks. The application of digital transformation also enhances the detection of weaknesses and defects in the internal control systems of banks listed on the Palestine Stock Exchange. It supports the process of expansion and spread to reach a larger segment of customers and the public, and helps customers view their accounts and carry out banking operations anywhere and at any time easily and safely.

Based on the above results, the study recommends the need for Palestinian banks to enhance the level of transparency and disclosure regarding governance performance and the progress of digital transformation by publishing detailed information about governance policies and their implementation and achieving digital transformation to enhance confidence among shareholders and customers and developing an integrated framework for analyzing and managing related risks to digital transformation, identifying potential opportunities and challenges, and implementing appropriate procedures to deal with them.

Bank administration must provide comprehensive training and development programs for employees to enhance their capabilities in the field of digital transformation and apply governance principles, this contributes to improving their skills and knowledge to enhance the effective implementation of policies and processes related to digital transformation.

Finally, this study presented a general picture of the role of governance mechanisms in supporting digital transformation in Palestinian banks. Since digital transformation has become a subject of increasing global interest, Cultural factors and customer preferences in Palestine might differ from those in other regions, influencing the adoption and effectiveness of digital banking services. Future studies, especially in the Palestinian environment, must conduct additional analysis to better understand the relationship between governance principles and digital transformation. This can be obtained by examining other possible factors that affect this relationship, such as organizational culture and the ability of banks to implement technical changes and innovation, challenges and difficulties, and the capital of banks and others.