Impact of Corporate Governance and Digital Financial Literacy on Banking Landscape of Pakistan

Abstract

This study investigates the impact of board characteristics—independence, size, gender diversity, and age—on digital financial literacy in the banking sector of Pakistan. Corporate governance has emerged as a critical factor in fostering digital transformation and promoting financial inclusion, particularly in emerging economies. The research employs a quantitative approach using a structured survey distributed to 248 employees from 10 banks operating in Islamabad. Data analysis was conducted using statistical tools such as correlation, regression, and reliability analysis to evaluate the relationships between the variables and their significance. The findings reveal that all board characteristics positively influence digital financial literacy. Board independence demonstrates a significant impact, highlighting the role of unbiased decision-making and effective oversight in advancing digital literacy initiatives. Board size shows a strong positive relationship, underscoring the importance of balancing diverse expertise with decision-making efficiency. Gender diversity on boards emerges as a critical factor, promoting inclusivity and enhancing the reach of financial literacy programs. Age diversity among board members is also significant, indicating that balancing experience and innovation supports successful governance practices and digital adoption. The study contributes to the theoretical understanding of corporate governance by validating resource dependence and social identity theories in the context of digital transformation. Practically, the findings provide actionable insights for banks and policymakers, emphasizing the importance of fostering board diversity, maintaining optimal board size, and ensuring independence to enhance digital financial literacy initiatives. These governance practices are essential for bridging the digital divide and promoting financial inclusion in Pakistan. While the research offers valuable insights, it is limited by its cross-sectional design and focus on Islamabad. Future studies should explore longitudinal data and include banks from diverse regions to gain a broader understanding of governance practices and their impact on digital financial literacy. This study lays a foundation for leveraging governance reforms to drive sustainable growth in the banking sector.