Digital Transformation of Financial Reporting and Enhancing Banking Sector in Palestine Competitiveness: An Empirical Analysis رسالة دكتوراة

Abstract

This study investigates the influence of Digital Transformation (DT) on Financial Reporting Quality (FRQ)—measured by audit timeliness (Audit Lag, AL) and reporting reliability (conservatism) and its indirect impact on Bank Competitiveness (BCI) within the banking sector in Palestine. Motivated by the global push for digitalization and increasing demands for transparent, timely, and reliable financial reporting, this research explores whether DT indirectly enhances competitiveness through improvements in FRQ. The study utilizes data from 2017 to 2023 from a sample of nine banks, employing panel regression models, mediation analysis, and Partial Least Squares Structural Equation Modeling (PLS-SEM) to investigate the sequential relationship: DT → Audit Lag (AL) → Financial Reporting Quality (FRQ) → Bank Competitiveness Index (BCI). The results indicate that : While DT does not directly influence BCI (β = 0.112, p = 0.241, rejecting H1), its effects are fully mediated via audit timeliness and conservatism. Key findings include: Significant indirect effects: Reduced AL enhances FRQ (β = -0.463, p < 0.001) and BCI (β = -0.590, p < 0.001), supporting H2–H4. Foreign banks exhibit 39% shorter AL (61 vs. 100 days for local banks), aligning with their advanced DT adoption. Local banks show higher conservatism (β₃ = -0.0751, p = 0.003), suggesting DT’s role in bridging reliability gaps. Quantile regression confirms AL’s negative impact on BCI is strongest at median performance levels (Q50: β = -0.62, p < 0.01). Theoretical contributions integrate technological advancement and accounting quality literature, while practical insights highlight DT’s indirect competitiveness gains through FRQ improvements. Although Digital Transformation (DT) did not demonstrate a statistically significant direct effect on Bank Competitiveness Index (BCI), mediation models highlighted the critical role of Audit Lag (AL) in explaining variations in competitiveness. These findings are partially limited by the modest sample size (n = 9 banks, 63 observations), suggesting future studies should utilize broader cross-sectional datasets or multi-country comparisons to validate these pathways and improve generalizability.