When Rain Matters! Investment Timing and Value Relevance

63 Pages Posted: 15 May 2020 Last revised: 1 Jun 2020

See all articles by Sandeep Rao

Sandeep Rao

Dublin City University Business School

Santosh Koirala

University of Birmingham, Birmingham Business School

Chandra Thapa

University of Strathclyde

Suman Neupane

Griffith University - Department of Accounting, Finance and Economics

Date Written: August 31, 2019

Abstract

We study whether firms in the rain-sensitive sectors time their investments to generate value in response to extreme deviations in rainfall conditions. Using Indian monsoon data, we show that the market-based valuations of rain-sensitive firms significantly declines in the immediate aftermath of extreme rainfall deviations. In terms of the cross-sectional variance of the extreme rainfall conditions and consistent with investment timing economic argument, our investigations show that when compared to normal rainfall conditions, affected rain-sensitive firms tend to significantly increase their investments following excess rainfall periods. Contrarily, we observe shrinkage of investments following deficit rainfall periods. However, in both cases, firms seem to regain the lost market-based values in the lead periods of extreme rainfall deviations.

Keywords: Abnormal Rainfall, Firm Value, Investment Timing, Capital Expenditure

JEL Classification: G30, G32, Q540, Q510

Suggested Citation

Rao, Sandeep and Koirala, Santosh and Thapa, Chandra and Neupane, Suman, When Rain Matters! Investment Timing and Value Relevance (August 31, 2019). Available at SSRN: https://ssrn.com/abstract=3586348 or http://dx.doi.org/10.2139/ssrn.3586348

Sandeep Rao (Contact Author)

Dublin City University Business School ( email )

Dublin 9
Ireland

Santosh Koirala

University of Birmingham, Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Chandra Thapa

University of Strathclyde ( email )

16 Richmond Street
Glasgow 1XQ, Scotland G1 1XQ
United Kingdom

HOME PAGE: http://https://www.strath.ac.uk/staff/thapachandradr/

Suman Neupane

Griffith University - Department of Accounting, Finance and Economics ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia

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