Revolutionary Sparks: Exploring the Resource Spillover Effect of Street Protests on Entrepreneurship

Research in advanced economies shows that street protests can indirectly influence untargeted firms through informational spillovers. We propose that, in developing economies, the indirect effects of street protests extend beyond information cues to include a resource spillover effect. Specifically, local officials may be motivated to defuse or redirect the momentum of street protests by appealing to constituents’ aspirations for economic well-being. This middle-ground approach sits between symbolic gestures and targeted policies directly addressing activists’ grievances and can facilitate the creation of new organizations. Using a longitudinal data set organized by city-year observations in China between 2008 and 2019, we examine how street protests over noneconomic issues impact the founding of new ventures. We find that city mayors’ response to street protests indirectly facilitates entrepreneurship by lowering business operating costs and increasing access to capital. Further, the resource spillover effect on businesses is accentuated by a political opportunity structure that enhances the impact of street protests on the responses of local politicians.