Extreme Rainfall and Institutional Investor Behavior

27 Pages Posted: 13 Apr 2021

See all articles by Andrew P. Marshall

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School

Sandeep Rao

Dublin City University Business School

Partha P. Roy

University of Strathclyde

Chandra Thapa

University of Strathclyde

Date Written: March 30, 2021

Abstract

We investigate institutional investor behavior and firm valuation surrounding extreme rainfall conditions in rain-sensitive firms. Using Indian monsoon data and exploiting extreme rainfall conditions as ongoing natural experiments, we show that institutional investors significantly increase (decrease) their ownership in rain-sensitive firms during the excess (deficit) rainfall years. Despite the extreme rainfall conditions we show that institutional investors gain from investing in rain-sensitive firms during excess periods, as those firms have superior financial performance in the following period. Further analysis shows that although both domestic and foreign institutional investors increase their ownership in rain-sensitive firms following excess rainfall periods, only domestic institutional investors significantly divest from rain-sensitive firms in deficit periods. Our results support the view that extreme climate conditions can impact firm value and change investor behavior.

Keywords: Extreme rainfall, Institutional investors, Rain-sensitive firms, Climate change

JEL Classification: G23, G30, G32, Q50, Q54

Suggested Citation

Marshall, Andrew P. and Rao, Sandeep and Roy, Partha P. and Thapa, Chandra, Extreme Rainfall and Institutional Investor Behavior (March 30, 2021). Available at SSRN: https://ssrn.com/abstract=3815526 or http://dx.doi.org/10.2139/ssrn.3815526

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 548 3894 (Phone)

Sandeep Rao (Contact Author)

Dublin City University Business School ( email )

Glasnevin Campus
Dublin 9
Ireland

HOME PAGE: http://www.sandeepkrao.com

Partha P. Roy

University of Strathclyde ( email )

199 Cathedral Street
Glasgow, Scotland G4 0QU
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/

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