When protesters took to Cairo’s Tahrir Square in 2011 to oppose a decades-old Egyptian regime, it wasn’t just a powerful political statement—it also upended the cozy relationship between the government and favored companies. The bigger the protests grew, the more they pushed down stock-market valuations for firms connected to the government, according to research by Chicago Booth’s Tarek Alexander Hassan, Daron Acemoğlu of the Massachusetts Institute of Technology, and Ahmed Tahoun at London Business School.

The researchers tracked the size of protests in Tahrir Square through print, online, and social media, and compared them with daily stock returns on the Egyptian Stock Exchange. Their findings suggest that protests may disrupt the “pipeline” of privileges and unearned income that flows to politically favored companies, without redistributing those privileges to firms connected to rivals of the regime in power. “Popular mobilization and protests might have a role in restricting the ability of connected firms to capture excess rents under weak institutions,” they write.

Comparing a daily estimate of protesters in Tahrir Square with returns on the stock prices of firms connected to the political elite, the researchers indicate that larger protests slowed a politically connected company’s returns more than smaller gatherings.

As some groups lose favor, their advantages are not redistributed to the opposition, Hassan says. For example, companies associated with Egypt’s military regime or the Muslim Brotherhood did not see gains on days when protests against Hosni Mubarak’s regime strengthened.

The researchers also find that Twitter influenced the size of the protests. Examining 311 million tweets from protesters and political leaders in Egypt, they show that when more people included the word Tahrir in their hashtags, more protesters turned out to Cairo’s main square the next day.

Although the researchers only studied Egypt, they say uprisings in countries such as Ukraine may have a similar effect. By taking away economic clout from politically connected firms, street protests could shift the balance of power in countries that have few checks on government influence.

Virtual protests on social media, while safer for citizens, don’t have the same effect on stock-market valuations, Hassan said. “You only see things moving when people go and protest in the street,” he said.

Larger, more cohesive protests in Tahrir Square likely send a stronger signal to investors, who may anticipate that ruling elites will be inhibited in expropriating wealth from the economy. On the other hand, when protests are weakening, connected companies see their economic privileges increase. When protesters attended rallies in support of the ruling regime, that, too, increased the returns of politically connected companies. “Investors believe that if the regime has support in the street, it can start misbehaving again,” Hassan says.

Economists can use this research to understand how even countries with corrupt governments and little legal retribution can be changed because of their citizens’ demands. “A big question in economic development is how countries evolve into a situation where the leadership no longer preys on the economy or its citizens,” Hassan says. The power of protests has helped economists find answers.

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