European Journal of Operational Research 234 (2014) 119–126

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European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Stochastics and Statistics

Updating a credit-scoring model based on new attributes without

realization of actual data
Yong Han Ju, So Young Sohn ⇑
Department of Information & Industrial Engineering, Yonsei University, 134 Shinchon-dong, Seoul 120-749, South Korea

a r t i c l e i n f o a b s t r a c t

Article history: Funding small and medium-sized enterprises (SMEs) to support technological innovation is critical for
Available online 28 February 2013 national competitiveness. Technology credit scoring models are required for the selection of appropriate
funding beneficiaries. Typically, a technology credit-scoring model consists of several attributes and new
Keywords: models must be derived every time these attributes are updated. However, it is not feasible to develop
Finance new models until sufficient historical evaluation data based on these new attributes will have accumu-
Credit-scoring model lated. In order to resolve this limitation, we suggest the framework to update the technology credit scor-
Exploratory factor analysis (EFA)
ing model. This framework consists of ways to construct new technology credit-scoring model by
Logistic regression analysis
ANOVA
comparing alternative scenarios for various relationships between existing and new attributes based
Small and medium enterprise on explanatory factor analysis, analysis of variance, and logistic regression. Our approach can contribute
to find the optimal scenario for updating a scoring model.
Ó 2013 Elsevier B.V. All rights reserved.

1. Introduction
Small and medium-sized enterprises (SMEs) occupy a large por-
tion of all industries (Ebrahim et al., 2011). According to 2007 sta-
tistics reported by the Korean Federation of Small and Medium
Business, SMEs account for 99.5% of the total enterprise, 76.9% of
the total employment (Kim et al., 2011). There is a number of gov-
ernment policies intended to structurally and financially support
these SMEs. One of these policies is a credit guarantee for SMEs
that is awarded on the basis of technology. The credit guarantee
policy provides financial support to SMEs suffering from insuffi-
cient investment from private financial institutions due to lack of
collateral and has the goal of increasing SME’s accessibility to pri-
vate financing sources (Oh et al., 2009).
The government has encouraged the creation of new businesses
and supported these SMEs via technology credit guarantee
schemes to help accelerate economic growth and to decrease the
unemployment rate, especially during the current economic down-
turn (Kang and Heshimati, 2008). However, this financial support
must be selective to prevent wasteful expenditures. In order to se-
lect the promising SMEs, technology credit scoring model is used.
Since the first attempt of development of technology credit scoring
model by Sohn et al. (2005), many studies have been published,
focusing on more accurate default prediction by adding behavioral
characteristics or economic environment to update existing credit
scoring models (Kočenda and Vojtek, 2009; Moon and Sohn, 2010;
Paleologo et al., 2010). However, these studies have not addressed
the issue of updating existing attributes in the credit scoring mod-
el. This is a very important issue, because technology credit-scor-
ing models often need to be updated to reflect the changes due
to mergers, separations, and deletions of existing attributes.
This paper proposes a method to update a credit-scoring model
with new attributes. A new model can be fitted only after collect-
ing data based on these new attributes. However, a new credit
scoring is needed to select SMEs, even before new data are ob-
served and utilized for a new credit model fitting. Upon unavail-
ability of such data, we propose approaches to find a new
technology credit scoring model based on potential relationships
between new attributes and existing attributes. Several scenarios
are formed to create new attributes from their potential relation-
ship with existing attributes. Exploratory factor analysis (EFA) is
used to reduce the multi-collinearity in new attributes. Using a lo-
gistic regression for loan default against resulting factors one can
obtain a new credit scoring model. Analysis of Variance (ANOVA)
is used to compare the performances of new credit scoring models
created according to different scenarios regarding the relationship
between existing and new attributes. As a result of ANOVA, we can
find the optimal scenario in terms of prediction accuracy.
This paper is organized as follows: Section 2 explains the pro-
posed methodology, and Section 3 applies the proposed approach
to the evaluation of SMEs in Korea. Section 4 summarizes results
of our study and suggests further areas of study.
2. Literature review

⇑ Corresponding author. Tel.: +82 2 2123 4014; fax: +82 2 364 7807. Credit guarantee scheme is an important part of enterprise
E-mail address: sohns@yonsei.ac.kr (S.Y. Sohn). financing, especially for small and medium-sized enterprises

0377-2217/$ - see front matter Ó 2013 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.ejor.2013.02.030
120 Y.H. Ju, S.Y. Sohn / European Journal of Operational Research 234 (2014) 119–126
which often are faced with difficulty in flow of private accounts. In
order to support these SMEs, various credit guarantee schemes
were actively used for corporate financing by Korea Credit Guaran-
tee Funds (KCGFs), and Korea Technology Credit Guarantee Fund
(KTCGF) in Korea (Shim, 2006), and credit guarantee amount keeps
increasing over time (Moskovitch and Kim, 2008). Especially,
KTCGF was established to help SMES get loan based on their tech-
nology. Therefore, evaluation of SMEs’ technology is very impor-
tant to reduce the risk involved in lending.
Currently, adverse selection and moral hazard problems are
critical issues in lending for SMEs. Although the guarantee agencies
sense the risk in terms of SME’s default, they tend to give SMEs
chances to innovate by allowing lending (Oh et al., 2009; Navajas,
2001; Lee et al., 2006; Stiglitz and Weiss, 1981). Moral hazard is
high because borrowers are aware that guaranty fund will cover
losses although borrowers become bankrupt (Oh et al., 2009). In
order to reduce such risk, technology credit scoring model was
introduced.
Since the first introduction of technology credit scoring
model by Sohn et al. (2005), many related studies have been
published (Sohn and Kim, 2007; Sohn et al., 2007, 2012; Kim
and Sohn, 2007, 2010; Moon and Sohn, 2008a,b). These
previous studies attempted to improve technology credit-scoring
models within the context of existing evaluation attributes
which can be matched with default/non-default of fund
recipient SMEs.
However, previous investigators did not consider issues related
to updating technology credit scoring model with new attributes
which have not been applied for lending decision yet. Established
credit-scoring models should be updated to reflect changes in attri-
butes. Often, new attributes are modified forms of existing attri-
butes. In updating process, we consider two different situations:
(1) multiple existing attributes are merged into a new attribute
and (2) existing attributes are redistributed to become part of sev-
eral new attributes. In this paper, we suggest ways to deal with
these two situations.
Fig. 1. Differences between existing and new scorecards.
3. Proposed methodology
In order to support small and medium enterprises, technology
credit guarantee fund has been established in Korea. This fund
gives the credit warranty to SMEs which score highly in technology
evaluation in terms of the 16 attributes. In Fig. 1, left side shows
the 16 attributes used originally in the scorecard when deciding
whether to guarantee applicant firms (Sohn et al., 2005). In this
study, we consider several potential scenarios describing the rela-
tionships between existing and new attributes and identify an
optimal scenario that assigns the most appropriate weights on
the existing attributes for the new attributes.
Technology credit scorecard includes a total of 16 attributes
(Fig. 1), which can be sorted into four categories: management,
technology, marketability, and profitability. Management attri-
butes describe CEO’s ability in various areas, such as knowledge
management, technology experience, management, funding sup-
ply, and human resources. These individual attributes are assigned
a maximum of five points each. Technology attributes, which in-
clude superiority, technology commercialization, product compet-
itiveness, and sales schedule, are assigned 10 points each.
However, it is difficult to distinguish CEO’s technology experience
from knowledge management, while funding supply should be
classified under profitability rather than management. Other possi-
bly misclassified attributes are listed in the right-hand column of
Fig. 1.
To update the credit-scoring model with new attributes, we
considered two alternate cases of change. In the first case, multiple
attributes are merged into a new attribute (e.g., P1&P2 (G1), P8&P9
(G7), and P4&P15 (G13)). In the second case, existing attribute is
redistributed to become parts of several new attributes or a new
attribute (e.g., P9 (G6, G7, G8)). When such changes are made by
the first and second cases, scoring models may be updated by
either approach (1) retaining the values of the original attributes
for the first case scenario but identifying split ratios for the second
case, or approach (2) identifying weights for existing attributes for
 Y.H. Ju, S.Y. Sohn / European Journal of Operational Research 234 (2014) 119–126 121

Table 1 Therefore, we conducted a comparison study based on the ap-

Results of ANOVA for c-statistics. proach (2) by considering several scenarios for weighting existing
Factor (weight ratio DF Sum of Mean F value p attributes. As described in Table 1, let us consider a case that 16
for each attribute) squares square Value attributes used in a previous credit scorecard were reduced to 15
G1*** 2 0.03170439 0.01585219 102177 <.0001 attributes in a new scorecard. By merging existing attributes,
G7*** 2 0.00027454 0.00013727 884.79 <.0001 new attributes are created: technology experience and knowledge
G13*** 2 0.00320823 0.00160411 10339.5 <.0001 management, technology completion, and business application
G1  G7*** 4 0.00075426 0.00018856 1215.42 <.0001
G1  G13*** 4 0.00125317 0.00031329 2019.37 <.0001
ability. Additionally, an old attribute, technology superiority, is di-
G7  G13*** 4 0.00089375 0.00022344 1440.19 <.0001 vided to create three new attributes, technology innovation, com-
G1  G7  G13*** 8 0.00152385 0.00019048 1227.77 <.0001 pletion, and expansion. We sought to identify the optimal scenario
*** describing their relationship using the following approach.
p Value < 0.01.
We considered several scenarios based on different weighting
schemes to convert existing attributes into new attributes G1,
the first case while retaining the values of the original attributes
G7, and G13, as shown in Fig. 1. For each scenario, exploratory fac-
for the second case.
tor analysis (EFA) is applied to produce new factors used as explan-
In approach (1), the values of new attributes created by merging
atory variables for a logistic regression meant to predict credit
existing attributes will be the simple sums of existing attributes for
default (West, 2000; Jung, 2000; Flint, 1997). EFA can be used to re-
the first case. On the other hand, weights are assigned to existing
duce the dimensionality of multivariate data and to detect patterns
attributes in the second case. However, some new attributes have
of association among variables (Gopinath, 1995; Blankson et al.,
a duplication problem. For instance, in P9, the values for G6 and G8
2007; Ghosh et al., 2011). Factors obtained by EFA for new attri-
are redundant. To address this problem, noise can be added by
butes are used in logistic regression, and the resulting c-statistic
using the Bernoulli process which ensures ordinal score.
describing the areas of ROC-curves is used to compare individual
In approach (2), when existing attributes become part of new
scenarios. In order to identify the optimal scenario for weight, AN-
attributes, it is necessary to identify appropriate weights for exist-
OVA is used to compare the performances of all scenarios (Sinha
ing attributes for P1&P2 (G1), P8&P9 (G7), and P4&P15 (G13) for
and Zhao, 2008; Amini et al., 2012). The flow chart for the proposed
the first case, while resolving the redundancy problem for G6
methodology is displayed in Fig. 2.
and G8 by generating random noise using the Bernoulli process
to distinguish G6 from G8 for the second case.
In approach (1), this kind of random noise must be generated as 4. Empirical study
well, but weighting the original attributes is not necessary. In addi-
tion, variation generated by noise alone is not expected to lead to In order to build a new technology credit-scoring model based
substantially different results in the performance of new technol- on the new attributes introduced in Section 2, we utilize an empir-
ogy credit scoring models. ical data set consisting of information from 3618 start-up firms

Fig. 2. Flow chart for the proposed methodology.

122 Y.H. Ju, S.Y. Sohn / European Journal of Operational Research 234 (2014) 119–126

changing attributes of technology experience and knowledge man-

Fig. 3. ROC curve of logistic regression.
that obtained credit guarantees based on technology credit scores
produced by the technology attributes conventionally used in Kor-
ea during 1999–2004. Among these start-up firms, 1259 went on
to default the loan within 5 years. We randomly selected 1259
matching control cases (firms that did not default). In non-default
case, we did not consider the successfully finished cases as cen-
sored with their fund return life term. These firms are small and
medium enterprises in various industries and were evaluated in
terms of the 16 existing attributes given in the left-hand side of
Fig. 1.
This section considers several weighting scenarios for a new
scorecard to identify the best option for new attributes. The
agement, technology completion, and business application ability
are combinations of existing attributes. We examined the effects
of three different weighting scenarios (Appendix A). Before the
analysis, all attributes were adjusted to a five-point scale.
Appendix A shows that a total of 27(33) combinations of
weighting schemes are possible. The optimal scenario must be
identified, therefore, by comparison of these 27 scenarios using a
three-way ANOVA.
In order to avoid the redundancy problem caused by splitting P9
into (G6, G7, G8), the following random variables x, y, and z, that
follow the independent Bernoulli process are created with proba-
bility of event, p, equal to 0.5. Bernoulli process is a finite or infinite
sequence of binary random variables that are a discrete-time sto-
chastic process that takes only two values such as 0 and 1. First,
the new attribute of technology innovation (G6) is created by add-
ing x to the value of the existing attribute technology superiority
(P9), if y is 1. Conversely, if y is 0, subtracting x from the value of
technology superiority (P9) creates the new attribute of technology
innovation (G6). Likewise, technology expansion (G8) is created
from technology superiority (P9) by using z. If z is 1, technology
expansion (G8) is created by adding x to the value of the existing
attribute technology superiority (P9). Conversely, if z is 0, subtract-
ing x to from the value of technology superiority (P9) creates the
new attributes of technology expansion (G8). This process is re-
peated 10 times. Those exceeding the range from 1 to 5 are con-
verted to those closest in value within the range.
4.1. Results of exploratory factor analysis
Sohn et al. (2005) suggested a technology credit-scoring model
that uses logistic regression based on factor analysis of 16 technol-
ogy-related attributes. This was the first attempt to improve tech-
nology credit scoring by removing the multi-collinearity of various

Table 2
Results of Tukey’s test of weighting plans for G1  G7  G13.

Tukey Mean N Scenario G1 (technology experience and knowledge G7 (technology completion) G13 (business application ability)
grouping number management)
Weight for knowledge Weight for Weight for new Weight for Weight for Weight for
management (%) technology technology (%) technology fund supply business progress
experience (%) superiority (%) (%) (%)
A 0.6833 10 3 90 10 90 10 10 90
A 0.6833 10 6 90 10 50 50 10 90
A 0.6832 10 9 90 10 10 90 10 90
B 0.6822 10 2 90 10 90 10 50 50
B 0.6821 10 5 90 10 50 50 50 50
C 0.6805 10 8 90 10 10 90 50 50
D 0.6785 10 27 10 90 10 90 10 90
D 0.6785 10 1 90 10 90 10 90 10
D 0.6784 10 4 90 10 50 50 90 10
D 0.678 10 18 50 50 10 90 10 90
D 0.678 10 7 90 10 10 90 90 10
D 0.678 10 12 50 50 90 10 10 90
D 0.678 10 15 50 50 50 50 10 90
E 0.676 10 14 50 50 50 50 50 50
E 0.676 10 17 50 50 10 90 50 50
E 0.6759 10 11 50 50 90 10 50 50
F 0.672 10 16 50 50 10 90 50 50
F 0.672 10 10 50 50 90 10 90 10
F 0.672 10 13 50 50 50 50 90 10
G 0.6576 10 21 10 90 90 10 10 90
G 0.6575 10 24 10 90 50 50 10 90
H 0.6547 10 26 10 90 10 90 50 50
H 0.6547 10 23 10 90 50 50 50 50
I 0.6536 10 20 10 90 90 10 50 50
J 0.6487 10 19 10 90 90 10 90 10
J 0.6483 10 25 10 90 10 90 90 10
J 0.6481 10 22 10 90 50 50 90 10
 Y.H. Ju, S.Y. Sohn / European Journal of Operational Research 234 (2014) 119–126 123

Table 3 scenarios. Different factors are obtained according to each scenario.

Identification of the best set of evaluation attributes. We performed a logistic regression analysis based on the EFA
New attribute Existing Weighting Weighting Weighting results.
attribute ratio based ratio based ratio based
on scenario on scenario on scenario
3 (%) 6 (%) 9 (%) 4.2. Results of logistic regression analysis
Technology Knowledge 90 90 90
experience management A logistic regression model was used to predict non-default
and Technology 10 10 10 using the 12 factors obtained from EFA resulting in 270 ROC (recei-
knowledge experience ver operating characteristic) curves. Among these, Fig. 3 shows 27
management
(G1)
ROC curves drawn from the first simulation.
Technology New 90 50 10 Each point on the ROC curve represents a sensitivity and (1-
completion technology specificity) pair over various threshold values. The closer the curve
(G7) Technology 10 50 90 follows the left-hand border and the top border of the ROC space,
superiority
the more accurate the test is (Moon and Sohn, 2008a,b; Brown
Business Fund supply 10 10 10
application Business 90 90 90 and Mues, 2012). As shown in Fig. 3, ROC curves vary by scenario.
ability (G13) progress ANOVA conducted with c-statistic as the area under the ROC curve
as a dependent variable found the optimal scenario. c-statistic ex-
plains area under ROC curve and values closer to 1.0 indicate better
discrimination by model (Higgins et al., 1997).
Table 4
Maximum likelihood estimates of a logistic regression model for non-defaulting firms
based on scenario 6. 4.3. ANOVA
Parameter Estimate Standard error Wald chi-square p-Value
For ANOVA tests of c-statistics, weighting plans for attributes
Intercept 0.00721 0.0422 0.0293 0.8641
Factor 1 0.0592 0.0424 1.9527 0.1623
G1 (technology experience and knowledge management), G7
Factor 2 0.045 0.0422 1.1388 0.2859 (technology completion), and G13 (business application ability)
Factor 3*** 0.6357 0.0443 206.263 <.0001 were used as three factors. The three levels of each factor corre-
Factor 4 0.0248 0.0421 0.3458 0.5565 sponded to the three different weight ratios: (90, 10), (50, 50),
Factor 5 0.0307 0.0422 0.5285 0.4673
and (10, 90). The results of ANOVA are given in Table 1.
Factor 6*** 0.1187 0.0425 7.8015 0.0052
Factor 7 0.0615 0.0425 2.0965 0.1476 These results show that all interaction effects, as well as the
Factor 8 0.0619 0.0425 2.1254 0.1449 main factors, are significant. Therefore, we examined the three-
Factor 9** 0.0861 0.0421 4.181 0.0409 way interaction effects among weighting plans for the three attri-
Factor 10*** 0.1187 0.0423 7.8627 0.005 butes. Results of Tukey’s test at a 5% significance level are given in
Factor 11*** 0.2152 0.0426 25.4785 <.0001
Factor 12 0.0258 0.0422 0.376 0.5398
Table 2.
Based on the results presented in Table 2, we observe that sce-
**
p-Value 0.05. narios 3, 6, and 9 yield significantly better performances than the
***
p-Value 0.01.
others. A summary is given in Table 3.
During the establishment of new credit-scoring models, new
attributes should be generated following the weighting ratios gi-
Appendix A1 ven in Table 3. In the results of Tukey’s tests, scenarios 3, 6, and
Weighting schemes for the new scorecard. 9 are grouped as the best. Table 3 shows that these three scenarios
Original attribute Proposal Proposal Proposal New attribute
vary in terms of weighting ratios for technology completion (G7).
1 (%) 2 (%) 3 (%) However, the choice of weighting ratios for G7 does not have a sig-
nificant effect on the classification performances. New attributes
Knowledge 90 50 10 Technology
management experience and are first generated based on scenario 6 as given in Table 3, and a
(P1) knowledge logistic regression model is fitted using these new attributes.
management (G1) In Table 4, the following factors are found to be significant at
Technology 10 50 90
the 5% level: Factor 3 (technology experience and knowledge man-
experience (P2)
New technology 90 50 10 Technology
agement), Factor 6 (sales schedule), Factor 9 (return on invest-
(P8) completion (G7) ment), Factor 10 (market potential), and Factor 11 (business
Technology 10 50 90 application ability). Result of EFA is shown in Appendix C. One
superiority (P9) interesting point is that F10 is assigned a negative coefficient. This
Fund supply (P4) 90 50 10 Business
factor represents market potential, and most of the SMEs in the
application ability
(G13) area of high market potential environment are often at a disadvan-
Business progress 10 50 90 tage due to intense competition with large companies in the same
(P15) market. With this, business application ability (Factor 11), sales
schedule (Factor 6), and return on investment (Factor 9) represent
the business and profitability. Therefore, we can say that business
attributes. In this paper, EFA was performed for the 15 newly cre- and profitability have significant effect on SMEs’ default prediction.
ated attributes for the 27 scenarios. EFA facilitates the removal of In addition, technology experience and knowledge management
potential multi-colinearity of these 15 attributes. EFA was repeated (Factor 3) has the largest coefficient therefore this factor can be
by the number of times that Bernoulli processes were applied to said as the most influential one. Factor 3, Factor 10, and Factor
individual scenarios. However, random noise generated by the Ber- 11 were considered as significant variables in previous studies
noulli process did not affect the factor pattern. (Moon and Sohn, 2010; Sohn and Moon, 2010) while other vari-
As shown in Appendix B, 12 factors identified by EFA explain ables such as Factor 6, Factor 9 were only significant in our model.
more than 90% of the variation in the 15 new attributes in all Next, we conducted Hosmer and Lemeshow’s Goodness-of-Fit test.
Appendix B1

124
Result of exploratory factor analysis.

Factor Scenario
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Factor 1 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8
G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6
G7 G7 G7 G7 G7 G7 G7 G7
Factor 2 G15 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3
G13 G4 G4 G4 G4 G4 G4 G4 G4 G4 G4 G4 G4 G4
Factor 3 G3 G2 G2 G1 G1 G1 G1 G1 G1 G15 G2 G14 G1 G1
G4 G13 G13 G13 G13 G13
Factor 4 G1 G1 G1 G5 G5 G5 G5 G2 G2 G1 G15 G1 G2 G2
Factor 5 G2 G15 G15 G2 G2 G2 G2 G5 G5 G2 G1 G5 G5 G5
Factor 6 G5 G14 G14 G14 G14 G14 G14 G14 G14 G5 G14 G2 G14 G14
Factor 7 G12 G5 G5 G12 G12 G12 G12 G12 G12 G12 G9 G10 G12 G12

Y.H. Ju, S.Y. Sohn / European Journal of Operational Research 234 (2014) 119–126
Factor 8 G9 G9 G9 G9 G9 G9 G9 G9 G15 G9 G5 G7 G9 G9
Factor 9 G14 G12 G12 G10 G15 G15 G10 G15 G9 G14 G12 G9 G15 G15
Factor 10 G10 G10 G10 G15 G10 G10 G15 G10 G10 G10 G7 G12 G10 G10
Factor 11 G7 G7 G7 G13 G13 G13 G13 G13 G13 G7 G10 G13 G13 G13
Factor 12 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11
Average cumulative 0.91428 0.91477 0.91185 0.9373 0.9373 0.93729 0.94662 0.94666 0.94665 0.91355 0.91403 0.91126 0.93657 0.93658
Weight
G1 R1 R1 R1 R1 R1 R1 R1 R1 R1 R2 R2 R2 R2 R2
G7 R1 R1 R1 R2 R2 R2 R3 R3 R3 R1 R1 R1 R2 R2
G13 R1 R2 R3 R1 R2 R3 R1 R2 R3 R1 R2 R3 R1 R2
15 16 17 18 19 20 21 22 23 24 25 26 27
Factor 1 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8 G8
G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6 G6
G7 G7 G7 G7 G7 G7 G7 G7 G7
Factor 2 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3 G3 G15
G4 G4 G4 G4 G4 G4 G4 G4 G4 G4 G4 G4 G13
Factor 3 G1 G1 G1 G1 G15 G2 G14 G1 G1 G1 G1 G1 G3
G13 G13 G15 G4
Factor 4 G2 G2 G2 G2 G1 G15 G1 G2 G2 G2 G2 G2 G1
Factor 5 G5 G5 G5 G5 G2 G1 G5 G5 G5 G5 G5 G5 G2
Factor 6 G14 G14 G14 G14 G5 G14 G2 G14 G14 G14 G14 G14 G5
Factor 7 G12 G12 G12 G12 G12 G9 G7 G12 G12 G12 G9 G15 G12
Factor 8 G15 G9 G15 G15 G9 G5 G10 G9 G15 G15 G15 G9 G9
Factor 9 G9 G15 G9 G9 G14 G12 G9 G15 G9 G9 G12 G12 G14
Factor 10 G10 G10 G10 G10 G10 G7 G12 G10 G10 G10 G10 G10 G10
Factor 11 G13 G13 G13 G13 G7 G10 G13 G13 G13 G13 G13 G13 G7
Factor 12 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11 G11
Average cumulative 0.93656 0.94592 0.94595 0.94593 0.91224 0.91266 0.91016 0.93529 0.93532 0.9353 0.94462 0.9447 0.91428
Weight
G1 R2 R2 R2 R2 R3 R3 R3 R3 R3 R3 R3 R3 R3
G7 R2 R3 R3 R3 R1 R1 R1 R2 R2 R2 R3 R3 R3
G13 R3 R1 R2 R3 R1 R2 R3 R1 R2 R3 R1 R2 R3

Proposal ratio 1 (R1): 90% reflection of the first attribute, 10% reflection of the second attribute.
Proposal ratio 2 (R2): 50% reflection of the first attribute, 50% reflection of the second attribute.
Proposal ratio 3 (R3): 10% reflection of the first attribute, 90% reflection of the second attribute.
 Y.H. Ju, S.Y. Sohn / European Journal of Operational Research 234 (2014) 119–126 125

Appendix C1
Result of exploratory factor analysis of scenario 6.

Rotated factor pattern

Factor1 Factor 2 Factor3 Factor 4 Factor5 Factor 6 Factor 7 Factor8 Factor 9 Factor 10 Factor 11 Factor 12
G8 0.9280 0.0712 0.0452 0.0354 0.0129 0.0102 0.0103 0.0508 0.0168 0.0376 0.0279 0.0662
G6 0.9254 0.0889 0.0365 0.0330 0.0136 0.0048 0.0191 0.0261 0.0378 0.0264 0.0289 0.0802
G7 0.8462 0.0862 0.0418 0.1460 0.0101 0.1070 0.1077 0.0974 0.0648 0.0709 0.0289 0.1541
G3 0.0811 0.8833 0.1054 0.0111 0.1913 0.0479 0.0485 0.0189 0.0952 0.0767 0.0939 0.0421
G4 0.2031 0.7088 0.3815 0.1998 0.0547 0.0222 0.1136 0.0797 0.0278 0.0704 0.0966 0.0130
G1 0.0710 0.0581 0.9686 0.0383 0.0060 0.0004 0.0251 0.0112 0.0232 0.0109 0.0170 0.0012
G5 0.1536 0.0948 0.0532 0.9721 0.0384 0.0055 0.0004 0.0370 0.0426 0.0073 0.0101 0.0515
G2 0.0229 0.1341 0.0021 0.0385 0.9650 0.0553 0.0549 0.0386 0.0611 0.0345 0.1539 0.0205
G14 0.0657 0.0536 0.0014 0.0052 0.0549 0.9752 0.0739 0.0386 0.1420 0.0355 0.0614 0.0691
G12 0.0948 0.1058 0.0168 0.0016 0.0542 0.0731 0.9780 0.0117 0.0610 0.0522 0.0516 0.0400
G9 0.1281 0.0602 0.0184 0.0378 0.0379 0.0383 0.0118 0.9791 0.0680 0.0061 0.0480 0.0892
G15 0.0875 0.0681 0.0225 0.0440 0.0628 0.1465 0.0633 0.0709 0.9641 0.0728 0.0628 0.0919
G10 0.0985 0.1062 0.0174 0.0062 0.0339 0.0349 0.0517 0.0061 0.0692 0.9835 0.0223 0.0258
G13 0.0626 0.1425 0.0270 0.0114 0.1568 0.0630 0.0534 0.0497 0.0626 0.0233 0.9671 0.0278
G11 0.2565 0.0455 0.0020 0.0559 0.0222 0.0745 0.0433 0.0974 0.0963 0.0281 0.0291 0.9483

The resulting p-value is 0.2824 (v2 value = 9.7588, DF = 8) which Appendix C

supports goodness-of-fit.
5. Conclusions
Many SMEs are important cornerstones to the flow dynamics of
industry. In Korea, the government has encouraged the creation of
new businesses and has chosen which SMEs to support financially
based on their expertise in and use of technology. Utilizing histor-
ical data, many studies have been conducted to develop technology
credit-scoring models that can reduce the technology credit risk in-
curred by the government.
In this paper, we showed how the proposed approach can be ap-
plied to updating a credit-scoring model with new attributes.
Through EFA, we eliminated multi-collinearity of new attributes.
The resulting factors were used for logistic regression according
to scenarios. Next we found the best model using ANOVA. The pro-
posed process in our study was designed for situations in which
new models cannot be obtained due to a lack of experience with
new attributes. Until some historical data are accumulated with
new attributes, guarantee institutions can utilize our approach
for their credit scoring business.
Our proposed process can be applied to other scoring systems
as well when scoring system should be improved and modified.
Our research can be improved in several ways. Further study needs
to provide approaches that can be applicable to consider additional
attributes which are totally new. In addition, this setting with new
attributes can be extended to life data analysis based on the time it
takes until loan default of SMEs. These topics are left for further
areas of research.
Acknowledgement
This research was supported by Basic Science Research
Program through the National Research Foundation of Korea
(NRF) funded by Ministry of Science, ICT & Future Planning
(2013R1A2A1A09004699).
Appendix A
See Appendix A1.
Appendix B
See Appendix B1.
See Appendix C1.
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