Booth Research Examines Effect of Tahrir Square Protests on Government Favored Companies

New research out of the Booth School of Business examined the Tahrir Square protests from back in 2011, and how protester power in numbers led to the eventual downfall of the ruling regime. That downfall cut off beneficial relationships between the government and favored companies. The research found that the bigger the protests grew, the more they pushed down stock-market valuations for firms connected to the government.

“The Power of the Street: Evidence from Egypt’s Arab Spring,” a working paper, suggest that protests may disrupt the “pipeline” of privileges and unearned income that flow to politically favored companies, without redistributing those privileges to firms connected to rivals of the regime in power.

Penned by Tarek A. Hassan of Chicago Booth, Daron Acemoglu of the Massachusetts Institute of Technology and Ahmed Tahoun of London Business School, the paper tracked the size of protests in Tahrir Square through various news media: print, online and social media. The level of protest engagement on these platforms was then compared to daily stock returns on the Egyptian Stock Exchange. What the researchers found was that Twitter influenced the size of the protests. Examining 311 million tweets from protesters and political leaders in Egypt, they show that when more tweets used “#Tahrir” hashtags, more protesters turned out to Cairo’s main square the next day.

But virtual protests alone are not enough to have an effect on stock-market valuations, according to Hassan.

“You only see things moving when people go and protest in the street,” Hassan said.

Ultimately, larger, more cohesive protests were more 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.

“Investors believe that if the regime has support in the street, it can start misbehaving again,” Hassan said.

You can read the original press release here.

regions: Chicago

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