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

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  • Rolando Gonzales Martinez
  • Bert D’espallier
  • Roy Mersland

    (UIA - University of Agder)

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).

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  • Rolando Gonzales Martinez & Bert D’espallier & Roy Mersland, 2021. "Bifurcations in business profitability: An agent-based simulation of homophily in self-financing groups," Post-Print hal-05221034, HAL.
    • Handle: RePEc:hal:journl:hal-05221034
    DOI: 10.1016/j.jbusres.2020.06.051
    Note: View the original document on HAL open archive server: https://hal.science/hal-05221034v1
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