A pronoun often refers to the first preceding noun phrase that agrees with it in number and gender -- but not always.
Charniak: no simple-minded syntactic algorithm will work for pronoun reference.
The city council denied the demonstrators a permit because they feared violence.Deep semantics is required to resolve such cases.
The city council denied the demonstrators a permit because they advocated violence.[Winograd, T., Understanding Natural Language, Academic Press, 1972.]