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Keywords:
Structural equation modeling (SEM)
Covariance-based SEM
Partial least squares-SEM
Family rms
Organizational reputation
Organizational trustworthiness
Structural equation modeling (SEM) has become the methodology of choice for many family business
researchers investigating complex relationships between latent constructs, such as family harmony or
family cohesion. Its capability to evaluate complex measurement models and structural paths involving
a multitude of variables and levels of constructs has enabled family business researchers to investigate
complex and intricate relationships that previously could not be easily untangled and examined. In many
cases, however, researchers struggle to meet some of the challenging requirements of covariance-based
SEM (CB-SEM), the most commonly used approach to SEM, such as distribution assumptions or sample
size. In this article, we point out the benets and disadvantages of CB-SEM, and present a comparison
with partial least squares-SEM (PLS-SEM) using an identical sample. We nd that even though both
methods analyze measurement theory and structural path models, there are many advantages in
applying PLS-SEM.
2014 Elsevier Ltd. All rights reserved.
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Table 1
Exploratory factor analysis.
Variables
5. Methodology
5.1. Measures
To investigate the relationship between distinct family rm
reputation and perceived trustworthiness of family businesses, a
standardized questionnaire was developed based on two established scales. One scale was the Fombrun, Gardberg, and Sever
(2000) Reputation Quotient Scale, which consists of six dimensions of corporate reputation, namely emotional appeal, products
and services, vision and leadership, workplace environment, social
and environmental responsibility, and nancial performance,
measured with 7-point Likert scales. The original wording of
the scale items was adapted by replacing the term organization
with family rm in each question to t the family business
context (see also Holt et al., 2010; Zellweger, Nason, & Nordqvist,
2012).
The second scale was Newell and Goldsmiths (2001) Corporate
Credibility Scale, a self-report scale designed to measure
corporate credibility or the amount of expertise and trustworthiness that consumers perceive in a corporation (p. 235). The scale
consists of two dimensions (4 items each), namely expertise and
trustworthiness, which were both assessed by 7-point-Likert
scales. In addition to the two scales described above, respondents
were asked to provide basic demographic information, including
whether they had previously worked in a family or non-family rm
(see Binz et al., 2013 for details).
5.2. Sample prole
An invitation to participate in the online survey on unipark.de
was sent to 480 potential respondents, all of which were personal
and professional acquaintances of 24 lecturers working at Lucerne
University of Applied Sciences in Switzerland. Two follow-up
emails were sent after 14 and 21 days, respectively, and 266
respondents followed the link and completed the questionnaire.
After eliminating respondents that failed to complete the
questionnaire, a total of 174 usable responses remained, representing an overall response rate of 36.25%. The sample size exceeds
the minimum required for the application of either CB-SEM or PLSSEM (Hair et al., 2014; Hair et al., 2010). The sample diversity was
satisfactory with 51% of all respondents being male. The average
age of the sample was 38 years. A test for non-response bias
(Armstrong & Overton, 1977) did not reveal signicant differences
between early and late respondents.
5.3. Initial measurement model evaluation
In the Binz et al. (2013) study, CFA was used to examine the
dimensionality, reliability and validity of the reputation constructs. When the CFA did not achieve acceptable t, and thus the
data did not reect the six dimensions proposed by Fombrun et al.
(2000), it was necessary to re-assess the theoretical foundation of
the scales. Subsequently, an EFA was executed, and after several
iterations and the removal of weaker items, an empirically
validated two-factor solution emerged (see Table 1). Based on a
qualitative assessment of the loadings, the new constructs were
named social expectations (SE, related to how a company does
business) and business expectations (BE, related to what a business
does in order to be successful), which differs slightly from the
original wording used in the previous study (see Appendix for list
Factor 1:
Social
expectations
Factor 2:
Business
expectations
.881
.884
.883
.747
.645
.705
.658
.812
.759
.557
.563
.741
.838
.549
.663
.580
.638
6.88
40.4
2.65
15.6
56.0
Note: N = 253. Varimax rotation. Factor loadings higher than .35 shown. Kaiser
MeyerOlkin measure of sampling adequacy = .917. The KMO measures the
sampling adequacy, which should be greater than .5 for a satisfactory factor
analysis to proceed (Hair et al., 2010).
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Table 2
CB-SEM convergent validity, reliability, and discriminant validity.
Variables
Business
expectations
Social
expectations
Trust
BE_1
BE_2
BE_9
SE_1
SE_2
SE_4
TRU25
TRU26
TRU27
.72
.72
.75
.54
.63
.62
Composite reliability
Cronbach alpha
.78
.78
.84
.83
.83
.83
.81
.87
.69
.87
.70
.77
Item
reliabilities
.53
.52
.57
.66
.75
.48
.76
.49
.60
FornellLarcker criterion*
BE
SE
Trust
BE
SE
Trust
.537
.425
.482
.63
.819
.617
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Table 3
Results of hypotheses tests based on CB-SEM model.
Hypothesis
Hypotheses paths
Path coefcients
p values
Accept/reject signicance
H1
H2
H3
H4
H5
BE ! Trust
BE ! Expertise
SE ! Trust
SE ! Expertise
Expertise ! Trust
.12
.21
.61
.54
.32
.129
.037
.000
.000
.000
Reject
Accept
Accept
Accept
Accept
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Table 4
PLS-SEM average variances extracted, composite reliability and R2 for endogenous
constructs.
Construct
AVE
Composite
reliability
Business expectations
Expertise
Social expectations
Trust
.56
.67
.56
.75
.86
.86
.88
.89
R2
.42
.69
Table 5
PLS-SEM FornellLarcker test for discriminant validity.
Business
expectations
Cronbach alpha
Business expectations
Expertise
Social expectations
Trust
.81
.76
.84
.83
.56
.31
.52
.42
Expertise
.67
.39
.54
Social
expectations
.56
.57
Trust
.75
Diagonal values in bold are AVEs and off-diagonal values are squared interconstruct
correlations.
Table 6
Results of hypotheses tests based on PLS-SEM based model.
Hypothesis
Hypotheses paths
Path coefcients
T-values
Accept/reject signicance
H1
H2
H3
H4
H5
BE ! Trust
BE ! Expertise
SE ! Trust
SE ! Expertise
Expertise ! Trust
.13
.22
.40
.47
.41
1.999
2.314
7.135
5.515
7.669
Accept**
Accept**
Accept***
Accept***
Accept***
Critical t-values for a two-tailed test are: <1.96 (p > .05*), 1.96 (p = .05**), and 2.58 (p = .001***).
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however, higher order models are more appropriate and sometimes necessary. A hierarchical component model (HCM) is a
general construct that consists of several subdimensions, often
referred to as rst order components. There are four main types of
HCMs discussed in scholarly literature (Jarvis, MacKenzie, &
Posakoff, 2003; Ringle, Sarstedt, & Straub, 2012; Wetzels,
Odekerken-Schroder, & van Oppen, 2009). The HCM that was
modeled in this study was reectivereective, which means the
relationships between the higher order construct and the two rst
order constructs, as well as the relationships between the rst
order constructs and their associated indicators, were all reective.
Selection of this type was based on theoretical considerations that
provided the underpinnings of this research.
Among the most important reasons for establishing HCMs is to
reduce the number of relationships in the structural model, making
the path model more parsimonious and easier to understand (less
complex). A second situation where HCMs are useful is when rst
order constructs are highly correlated (Hair et al., 2014). If high
multicollinearity exists among the rst order constructs structural
model coefcients may be biased, the signs may actually change,
and discriminant validity may not be possible. In such situations,
HCMs (most often 2nd order constructs) can reduce collinearity
problems and possibly solve discriminant validity issues.
HCMs are possible with both CB-SEM and PLS-SEM, but there
are different considerations. For example, in general CB-SEM
requires a minimum of three rst order constructs in order to
overcome identication issues (Hair et al., 2010). The exception to
this requirement is if you set the variance of the second order
construct to 1, or x the values of the two relationships (paths)
between the second order and rst order constructs to the value of
the most reliable rst order loading, typically somewhere in the
range of .75.85 (note that some scholars believe that fooling the
mathematics in this manner to overcome identication problems
with CB-SEM is problematic). In contrast, PLS-SEM can easily be
executed with only two rst order constructs since identication is
not a consideration with this method.
The PLS-SEM HCM is shown in Fig. 6. Note that the repeated
indicators approach was used to execute this PLS-SEM HCM (Hair
et al., 2014). As with other PLS-SEM approaches, the rst step in
evaluating a model that includes an HOC (Higher Order Component) is to examine the outer model in an effort to validate the
measurement model. Since the constructs were the same as in the
previous model, with the exception of the HOC, the model again
exhibited reliability, convergent validity, and discriminant validity. Moreover, the HOC demonstrated convergent validity. Examination of the path coefcients and levels of signicance indicated
that all ve hypotheses were accepted when the HOC was included
in the structural model. Finally, the structural path coefcients and
explained variances in the endogenous constructs were comparable to the previous PLS-SEM results. The major difference was in
the meaningful contribution of the Business expectations construct to the HOC, and ultimately toward predicting the other
endogenous constructs. The path loadings of the rst order
constructs can be used to interpret the contribution of the LOC
(lower order constructs) to the HOC. Note that the loading of the BE
construct is .89 and of the SE construct is .95. In short, the
structural model with the HOC is better able to capture the
contribution of the BE construct than was the previous model.
While multicollinearity among the exogenous constructs was not
an issue in this SEM, if it had been the HCM would have
represented an excellent solution. In terms of theory development,
there is some theoretical support for the HCM so in the current
study it would be considered an acceptable alternative competing
model. Thus, both models can contribute toward better understanding of these types of relationships within a family business
context.
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