Nowcasting Firms’ Operating Activities from Satellite Data on Thermal Infrared Radiation

Practical real-world activities consume energy and emit thermal infrared radiation (TIR). On the basis of this physical fact, we develop a measure for directly gauging firms' operating activities. Specifically, we exploit satellite data to identify the TIR emitted by firms' factories during their production and operations and to examine whether firms' TIR is informative about their future performance. Using a large dataset of the factories of publicly listed firms, we find that the change in firms' TIR is significantly and positively related to their future sales growth and profitability. The effects increase with firms' energy efficiency and productivity, supporting the notion that TIR is part of the technological process of converting energy and raw materials into products. We further find that firms' TIR is positively related to their future stock returns, earnings announcement returns, and analyst forecast errors. The return predictivity of TIR becomes more pronounced when investors' ex-ante information acquisition (e.g., site visits) and firms' reporting transparency are lower. There is no clear relationship between TIR and sophisticated investors' trading activities. Overall, the evidence suggests that TIR contains valuable information on firms' operating activities.