Â鶹ÒùÔº

Timely information on a company's production activities is crucial for investors and policymakers, yet it remains scarce as financial reports and other broader economic indicators like the Purchasing Managers' Index (PMI) are only released periodically. This information lag makes it difficult to assess a company's operational health in real time.

To address this challenge, Prof Zhao Xiaofeng, Associate Professor of the Department of Finance and Associate Director of Hong Kong Institute of Business Studies at Lingnan University, in collaboration with researchers from the Huazhong University of Science and Technology and The Chinese University of Hong Kong, Shenzhen, has developed a new economic indicator, which uses thermal infrared radiation data to monitor the production and operation of enterprises in real time, and accurately predicts changes in their future profitability in terms of sales growth.

The findings were featured in the Journal of Financial and Quantitative Analysis.

Motivated by the law of thermodynamics, which states that all energy-consuming processes produce heat, the research team uses thermal radiation as a new indicator of economic activity. Applying this physical law to financial markets, the team uses real-time satellite imagery to obtain thermal radiation data from the factories of listed manufacturing companies in Mainland China.

By combining geographic information databases and mapping platforms to identify company locations, and analyzing the data with specialized data-processing algorithms, the team constructed the Thermal Infrared Radiation (TIR) Indicator.

This shows changes in TIR released during the production and operation of companies and factories, which predict future sales growth and profitability. The team also compared the TIR Indicator with conventional economic data, and found it correlates positively with stock returns, earnings announcement returns, and analysts' forecasts.

Both sets of data declined significantly during the COVID-19 pandemic, and then rebounded sharply after the outbreak was brought under control and economic activity gradually recovered. The team confirmed that the TIR Indicator provides more timely and effective key data for future business decisions, enabling policymakers to make more accurate investment and operational assessments.

Prof Zhao Xiaofeng, Associate Professor of the Department of Finance and Associate Director of Hong Kong Institute of Business Studies, said that the research team broke new ground by using TIR data to predict the performance of companies, ahead of the release of public information to the market, thus providing an up-to-the-minute understanding of their production situation and an information advantage.

Prof Zhao said, "Many economic indicators fail to reflect actual, real-time operating conditions of an enterprise because accounting data, like revenue, inherently lags behind production. The TIR Indicator overcomes this shortcoming by providing a direct window into the production and operating activities of manufacturers. This improved timeliness helps investors track firm performance and forecast fundamentals.

"At the same time, the ability to monitor firms' activities in real time can help identify potential operational risks quickly, offering a powerful tool for identifying potential operational disruptions, such as factory shutdowns or production slowdowns, in near real-time."

He also pointed out that the research applies satellite remote sensing data to analyze microeconomic performance. The information is obtained directly from open platforms at a very low cost, and can be used for global economic analysis, covering a wide range of manufacturing industries.

The TIR Indicator should become an important new economic indicator, providing more accurate information on which to make decisions and quickly identify potential production and operational problems. The team is currently applying for patents in Hong Kong and Mainland China.

While the research focuses on financial applications, Professor Zhao believes it also contributes to the United Nations' Sustainable Development Goal (SDG 9) of fostering "inclusive and sustainable industrialization." The TIR Indicator offers a novel, data-driven tool to monitor operational efficiency in real-time.

As greater efficiency is a cornerstone of sustainable industry, leading to better resource management, this research provides a new method for stakeholders to assess and improve industrial performance, supporting the development of more innovative and resilient industries.