A study by Princeton University has found that the sparse hair of the elephant helps carry heat away from the animal's skin and into the air.

"In this paper we show that the sparse hair has the opposite effect," New Scientist quoted Elie Bou-Zeid, who led the research team, as saying.
Unlike most mammals, where dense body hair insulates against the cold, elephant hairs can increase heat loss by up to 20 per cent.
The big leathery animals that they are, they need to know how to cool themselves off.
They splash water and mud on themselves from their trunks for the same reason.
Source-ANI