On the Use of Formative Measurement Specifications in Structural Equation Modeling: A Monte Carlo Simulation Study to Compare Covariance-Based and Partial Least Squares Model Estimation Methodologies

The broader goal of this paper is to provide social researchers with some analytical guidelines when investigating structural equation models (SEM) with predominantly a formative specification. This research is the first to investigate the robustness and precision of parameter estimates of a formative SEM specification. Two distinctive scenarios (normal and non-normal data scenarios) are compared with the aid of a Monte Carlo simulation study for various covariance-based structural equation modeling (CBSEM) estimators and various partial least squares path modeling (PLS-PM) weighting schemes. Thus, this research is also one of the first to compare CBSEM and PLS-PM within the same simulation study. We establish that the maximum likelihood (ML) covariance-based discrepancy function provides accurate and robust parameter estimates for the formative SEM model under investigation when the methodological assumptions are met (e.g., adequate sample size, distributional assumptions, etc.). Under these conditions, ML-CBSEM outperforms PLS-PM. We also demonstrate that the accuracy and robustness of CBSEM decreases considerably when methodological requirements are violated, whereas PLS-PM results remain comparatively robust, e.g. irrespective of the data distribution. These findings are important for researchers and practitioners when having to choose between CBSEM and PLS-PM methodologies to estimate formative SEM in their particular research situation.PLS, path modeling, covariance structure analysis, structural equation modeling, formative measurement, simulation study

On the Use of Formative Measurement Specifications in Structural Equation Modeling: A Monte Carlo Simulation Study to Compare Covariance-Based and Partial Least Squares Model Estimation Methodologies

The broader goal of this paper is to provide social researchers with some analytical guidelines when investigating structural equation models (SEM) with predominantly a formative specification. This research is the first to investigate the robustness and precision of parameter estimates of a formative SEM specification. Two distinctive scenarios (normal and non-normal data scenarios) are compared with the aid of a Monte Carlo simulation study for various covariance-based structural equation modeling (CBSEM) estimators and various partial least squares path modeling (PLS-PM) weighting schemes. Thus, this research is also one of the first to compare CBSEM and PLS-PM within the same simulation study. We establish that the maximum likelihood (ML) covariance-based discrepancy function provides accurate and robust parameter estimates for the formative SEM model under investigation when the methodological assumptions are met (e.g., adequate sample size, distributional assumptions, etc.). Under these conditions, ML-CBSEM outperforms PLS-PM. We also demonstrate that the accuracy and robustness of CBSEM decreases considerably when methodological requirements are violated, whereas PLS-PM results remain comparatively robust, e.g. irrespective of the data distribution. These findings are important for researchers and practitioners when having to choose between CBSEM and PLS-PM methodologies to estimate formative SEM in their particular research situation.marketing ;

Capturing and Treating Unobserved Heterogeneity by Response Based Segmentation in PLS Path Modeling. A Comparison of Alternative Methods by Computational Experiments

Segmentation in PLS path modeling framework results is a critical issue in social sciences. The assumption that data is collected from a single homogeneous population is often unrealistic. Sequential clustering techniques on the manifest variables level are ineffective to account for heterogeneity in path model estimates. Three PLS path model related statistical approaches have been developed as solutions for this problem. The purpose of this paper is to present a study on sets of simulated data with different characteristics that allows a primary assessment of these methodologies.Partial Least Squares; Path Modeling; Unobserved Heterogeneity

What’s important for relationship management? The mediating roles of relational trust and satisfaction for loyalty of cooperative banks’ customers

Building on the corporate reputation model, this study investigates the drivers of customer-based corporate reputation. We consider two corporate reputation dimensions (i.e., the cognitive dimension competence and the affective dimension likeability, and their effects on customer satisfaction and loyalty). Adapting the model to the banking sector, we theoretically extend this model by reasoning that customer satisfaction and relational trust are mediators of the relationship between the two corporate reputation dimensions and loyalty. Studying a sample of 675 customers and members of cooperative banks in Germany, we find perceived attractiveness to be the most important driver of corporate reputation. Furthermore, we confirm a positive relationship between corporate reputation and loyalty, and a mediating effect of both satisfaction and relational trust. With our study, we give support for the proposition of customer satisfaction's as well as relational trust’s role as mediators of the relationship between corporate reputation and loyalty. With this research, we expand our knowledge on the well-known corporate reputation model, which has high relevance and important implications for marketing research and relationship management practice

Segmentation for path models and unobserved heterogeneity: The finite mixture partial least squares approach

Partial least squares-based path modeling with latent variables is a methodology that allows to estimate complex cause-effect relationships using empirical data. The assumption that the data is collected from a single homogeneous population is often unrealistic. Identification of different groups of consumers in connection with estimates in the inner path model constitutes a critical issue for applying the path modeling methodology to form effective marketing strategies. Sequential clustering strategies often fail to provide useful results for segment-specific partial least squares analyses. For that reason, the purpose of this paper is fourfold. First, it presents a finite mixture path modeling methodology for separating data based on the heterogeneity of estimates in the inner path model, as it is implemented in a software application for statistical computation. This new approach permits reliable identification of distinctive customer segments with their characteristic estimates for relationships of latent variables in the structural model. Second, it presents an application of the approach to two numerical examples, using experimental and empirical data, as a means of verifying the methodology's usefulness for multigroup path analyses in marketing research. Third, it analyses the advantages of finite mixture partial least squares to a sequential clustering strategy. Fourth, the initial application and critical review of the new segmentation technique for partial least squares path modeling allows us to unveil and discuss some of the technique's problematic aspects and to address significant areas of future research

Estimating Moterating effects in PLS-SEM andPLSc-SEM: interaction term gerneration*data treatment

When estimating moderating effects in partial least squares structural equation modeling (PLS-SEM), researchers can choose from a variety of approaches to model the influence of a moderator on a relationship between two constructs by generating different interaction terms. While prior research has evaluated the efficacy of these approaches in the context of PLS-SEM, the impact of different data treatment options on their performance in the context of standard PLS-SEM and consistent PLS-SEM (PLSc-SEM) is as yet unexplored. Our simulation study addresses these limitations and explores if the choice of approach and data treatment option has a pronounced impact on the methods’ parameter recovery. An empirical application substantiates these findings. Based on our results, we offer recommendations for researchers wishing to estimate moderating effects by means of PLS-SEM and PLSc-SEM

On the Emancipation of PLS-SEM: A Commentary on Rigdon (2012)

Rigdon's (2012) thoughtful article argues that PLS-SEM should free itself from CB-SEM. It should renounce all mechanisms, frameworks, and jargon associated with factor models entirely. In this comment, we shed further light on two subject areas on which Rigdon (2012) touches in his discussion of CB-SEM and PLS-SEM. Rigdon (2012) highlights ways to make better use of PLS-SEM's predictive capabilities, for example, by reverting to set correlations. We discuss this issue in more detail, highlighting the need to examine the predictive capabilities of models when developing and testing theories, and broach the issue of confirmatory versus exploratory modeling. As a result of our discussion, we call for the continuous improvement of the PLS-SEM method to uncover its capabilities for theory testing while retaining its predictive characte

Segmentation of PLS-Path Models by Iterative Reweighted Regressions

Uncovering unobserved heterogeneity is a requirement to obtain valid results when using the structural equation modeling (SEM) method with empirical data. Conventional segmentation methods usually fail in SEM since they account for the observations but not the latent variables and their relationships in the structural model. This research introduces a new segmentation approach to variance-based SEM. The iterative reweighted regressions segmentation method for PLS (PLS-IRRS) effectively identifies segments in data sets. In comparison with existing alternatives, PLS-IRRS is multiple times faster while delivering the same quality of results. We believe that PLS-IRRS has the potential to become one of the primary choices to address the critical issue of unobserved heterogeneity in PLS-SE

Discovering Unobserved Heterogeneity in Structural Equation Models to Avert Validity Threats

A large proportion of information systems research is concerned with developing and testing models pertaining to complex cognition, behaviors, and outcomes of individuals, teams, organizations, and other social systems that are involved in the development, implementation, and utilization of information technology. Given the complexity of these social and behavioral phenomena, heterogeneity is likely to exist in the samples used in IS studies. While researchers now routinely address observed heterogeneity by introducing moderators, a priori groupings, and contextual factors in their research models, they have not examined how unobserved heterogeneity may affect their findings. We describe why unobserved heterogeneity threatens different types of validity and use simulations to demonstrate that unobserved heterogeneity biases parameter estimates, thereby leading to Type I and Type II errors. We also review different methods that can be used to uncover unobserved heterogeneity in structural equation models. While methods to uncover unobserved heterogeneity in covariance-based structural equation models (CB-SEM) are relatively advanced, the methods for partial least squares (PLS) path models are limited and have relied on an extension of mixture regression—finite mixture partial least squares (FIMIX-PLS) and distance measure-based methods—that have mismatches with some characteristics of PLS path modeling. We propose a new method—prediction-oriented segmentation (PLS-POS)—to overcome the limitations of FIMIX-PLS and other distance measure-based methods and conduct extensive simulations to evaluate the ability of PLS-POS and FIMIX-PLS to discover unobserved heterogeneity in both structural and measurement models. Our results show that both PLS-POS and FIMIX-PLS perform well in discovering unobserved heterogeneity in structural paths when the measures are reflective and that PLS-POS also performs well in discovering unobserved heterogeneity in formative measures. We propose an unobserved heterogeneity discovery (UHD) process that researchers can apply to (1) avert validity threats by uncovering unobserved heterogeneity and (2) elaborate on theory by turning unobserved heterogeneity into observed heterogeneity, thereby expanding theory through the integration of new moderator or contextual variables

Structural equation models: From paths to networks (Westland 2019)

Structural equation modeling (SEM) is a statistical analytic framework that allows researchers to specify and test models with observed and latent (or unobservable) variables and their generally linear relationships. In the past decades, SEM has become a standard statistical analysis technique in behavioral, educational, psychological, and social science researchers’ repertoire. From a technical perspective, SEM was developed as a mixture of two statistical fields—path analysis and data reduction. Path analysis is used to specify and examine directional relationships between observed variables, whereas data reduction is applied to uncover (unobserved) low-dimensional representations of observed variables, which are referred to as latent variables. Since two different data reduction techniques (i.e., factor analysis and principal component analysis) were available to the statistical community, SEM also evolved into two domains—factor-based and component-based (e.g., Jöreskog and Wold 1982). In factor-based SEM, in which the psychometric or psychological measurement tradition has strongly influenced, a (common) factor represents a latent variable under the assumption that each latent variable exists as an entity independent of observed variables, but also serves as the sole source of the associations between the observed variables. Conversely, in component-based SEM, which is more in line with traditional multivariate statistics, a weighted composite or a component of observed variables represents a latent variable under the assumption that the latter is an aggregation (or a direct consequence) of observed variables