Abstract
The results of the 2004 Indian elections were surprising as the victory of the Congress party was unforeseen by most pre-poll and exit surveys. The unexpected political change, with an associated shift from a centre-right to a centre-left government presented an unanticipated discontinuity in the business environment. We examine whether US companies that had offshored to India faced heightened levels of political risk when election results were announced. A unique contribution of the paper is that we also examine whether US companies that offshored to India in early-2004, faced greater political risk than companies that offshored to the country in 2002 and 2003. Results indicate an increase in political risk as manifested as an increase in systematic risk. Companies that offshored in 2004 faced greater political risk as compared to companies that offshored earlier. Our findings validate the use of a political risk premium when evaluating offshore ITES projects.
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