Bifurcations in business profitability: An agent-based simulation of homophily in self-financing groups

Rolando Gonzales Martinez, Bert D’espallier and Roy Mersland
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Roy Mersland: UIA - University of Agder

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Abstract: Formal financial institutions inadequately distribute startup capital to business ventures of ethnic minorities, women, low-educated, and young people. Self-financing groups fill this gap because in these associations agents accumulate their savings into a fund that is later used to provide loans to the members. This study builds and simulates an agent-based model that compares the profitability of businesses started by members of selffinancing groups against businesses financed by commercial loans. The results indicate that-besides the selfgeneration of debt capital-businesses of members of self-financing groups can have higher returns due to the consolidation of social capital and the competitive advantage created through a dual process of homophily. Higher quotas of savings boost profits, but only up to a threshold, after which a bifurcation pattern-typical of complexity dynamics-emerges. The practical and theoretical implications of the findings are discussed and future research lines are proposed.☆ This research was supported with funds and contributions provided by the FAHU Foundation. We also acknowledge financial support from the Research Foundation Flanders FWO (projects G067820H and S006019N).

Keywords: Agent-based; models; Self-financing; businesses; Social; capital; Nano-finance (search for similar items in EconPapers)
Date: 2021
Note: View the original document on HAL open archive server: https://hal.science/hal-05221034v1
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Published in Journal of Business Research, 2021, 129, pp.495-514. ⟨10.1016/j.jbusres.2020.06.051⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05221034

DOI: 10.1016/j.jbusres.2020.06.051

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