Sectoral Impact of Corporate Governance: Short-Term Profitability vs. Long-Term Value Creation

Abstract

This paper investigates how financial performance influences corporate governance in several sectors, exposing
significant results that vary depending on industry. These findings demonstrate the strategic importance of governance:
effective governance encourages investment and enhances firm value in capital-intensive sectors (e.g., manufacturing,
energy), while also boosting short-term profitability in heavily regulated sectors (e.g., healthcare, finance). A quantitative
cross-industry analysis was conducted using financial performance and governance data. The findings underline the need for
critical industry-specific regulations inside the more general Environmental, Social, and Governance (ESG) framework. Strong
governance structures and efficiency are significantly correlated (r = 0.354) between governance and EBIT in the banking
industry. Greater profitability follows from this. Similarly, a strong correlation between governance and EBITDA in the
healthcare sector (r = 0.495) highlights the critical role of robust governance for operational resilience and financial stability,
especially in a highly financially constrained and highly regulated environment such as healthcare. By contrast, the consumer
sector shows a weaker correlation (r = 0.223), implying that various factors play a greater role in its profitability than
enhancements in the operational efficiency of governance. In the energy industry, governance is more strongly correlated
with long-term enterprise value (r = 0.468) than short-term profitability, indicating that strong governance drives long-term
company value, even if costly in the short term. In the industrial sector, a significant correlation between governance and
enterprise value (r = 0.447), consistent with past studies, underlines that effective governance is crucial for maximizing
investment strategies and guaranteeing long-term firm value in capital-intensive sectors. These results illustrate that
governance strategies must be tailored to these sectors’ budgetary and regulatory contexts. While strong governance
improves profitability in regulated sectors, it fosters long-term wealth development in capital-intensive businesses.
Therefore, investors and company executives should modify their governance policies to the needs of their industry rather
than rigorously following an ESG model.