J. of the Acad. Mark. Sci.
(2012) 40:8–34
DOI 10.1007/s11747-011-0278-x
Specification, evaluation, and interpretation of structural
equation models
Richard P. Bagozzi & Youjae Yi
Received: 15 July 2011 / Accepted: 27 July 2011 / Published online: 21 August 2011
# Academy of Marketing Science 2011
Abstract We provide a comprehensive and user-friendly
compendium of standards for the use and interpretation of
structural equation models (SEMs). To both read about and
do research that employs SEMs, it is necessary to master
the art and science of the statistical procedures underpin-
ning SEMs in an integrative way with the substantive
concepts, theories, and hypotheses that researchers desire to
examine. Our aim is to remove some of the mystery and
uncertainty of the use of SEMs, while conveying the spirit
of their possibilities.
Keywords Structural equation models . Confirmatory factor
analysis . Construct validity . Reliability . Goodness-of-fit
What we observe is not nature itself, but nature
exposed to our method of questioning.
Werner Heisenberg
Introduction
Structural equation models are statistical procedures for
testing measurement, functional, predictive, and causal
hypotheses. Complementing multiple regression and ANOVA
R. P. Bagozzi (*)
Ross School of Business, University of Michigan,
Ann Arbor, MI, USA
e-mail: bagozzi@umich.edu
Y. Yi
College of Business Administration, Seoul National University,
Seoul, Korea
e-mail: youjae@snu.ac.kr
methods, among others, these multivariate statistical tools are
essential to master if one is to understand many bodies of
research and to conduct basic or applied research in the
behavioral, managerial, health, and social sciences.
In this article, we focus on providing researchers with
knowledge needed to specify, evaluate, and interpret
structural equation models (SEMs). Structural equation
modeling can be complex to implement, and the appraisal of
findings can be difficult as well. Surprisingly, treatments of the
evaluation and interpretation of SEMs are few in number,
sparse in coverage, and in need of updating (e.g., Bagozzi
1980, 2010; Bagozzi and Baumgartner 1994; Bagozzi and Yi
1988; Barrett 2007; Gefen et al. 2000; Iacobucci 2009, 2010;
Markland 2007; McDonald and Ho 2002). A need exists to
consider the art and practice of SEM specification, evalua-
tion, and interpretation without sacrificing too much techni-
cal considerations. We attempt to strike a balance that is
especially mindful of the everyday user of SEMs and the
general reader of SEM research.
Some preliminaries
Researchers disagree on how to present SEMs, with some
(e.g., Bentler 2010) favoring the use of equations and
simple diagrams, and others (e.g., Iacobucci 2009) prefer-
ring the use of matrix algebra and diagrams with Greek
letters. The choice is largely a matter of taste and previous
exposure to one approach or another. The former is less
intimidating than the latter, but because many published
articles contain common Greek letter conventions and the
level of matrix algebra is typically very elementary, it might
be worthwhile to become familiar with both the use of
equations and matrixes and Greek letters. In any case, all
the leading programs—AMOS (Arbuckle 2009), EQS
J. of the Acad. Mark. Sci. (2012) 40:8–34 9

(Bentler 2008), LISREL (Jöreskog and Sörbom 1996a, b),
and Mplus (Muthén and Muthén 2010)—permit some
combination of matrix algebra, equation, and/or graphical
implementations. Our personal experience and comments
from students and colleagues over the years suggest that
SEM users achieve deeper insight and avoid certain model
misspecification errors when they include matrix conven-
tions in their skill sets. But again, the choice of approach
and indeed the choice of program involve heavy elements
of convention and familiarity gained from taking an
introductory course or workshop.
Figure 1 presents an SEM for illustrative purposes; it is
typical of what one finds across the various literatures. Here
we take as an example the technology acceptance model
(TAM), one of the most highly cited models in the literature
(two articles alone have received over 15,000 Google
citations to date: Davis 1989; Davis et al. 1989). Although
TAM was originally tested with multiple regression, SEMs
are routinely used nowadays.
The TAM attempts to explain the adoption of new
technologies (“usage” in Fig. 1) and posits that usage is a
direct function of one’s decision or intention to adopt the
technology. Intention to adopt, in turn, is determined by
one’s attitude toward adoption and felt normative pressure
to adopt. Two basic categories of reasons for adoption—
perceived usefulness and ease of use—ground attitudes and
subjective norms.
The standard graphical SEM conventions have been used
in Fig. 1. The central variables in TAM are shown as ellipses
or circles, with arrows used to connect these variables, so as
to conform to hypotheses. For example, the hypothesis that
usage will be a function of intentions is conveyed by the
arrow going from intention to usage. The central variables in
a theory go by various names: latent variables, theoretical
variables, constructs or theoretical constructs, unobservable
variables, factors, traits, or simply, concepts. They signify the
notion that the variables in our theories and hypotheses are
typically framed as abstractions, ideal types, or ideas
conceived conceptually without measurement error necessar-
ily in mind. Each latent variable in Fig. 1 is connected to one
or more rectangles or boxes, which designate measurements
of the latent variables. The measurements are also referred to
variously as manifest variables, empirical variables, observed
variables, observations, indicators, or simply, measures. The
connections of latent variables to manifest variables are also
represented by arrows.

E3, 1 E4, 2 E5, 3 E6, 4

E7, 5

v3 , y1 v4, y2 v5, y3 v6, y4 v7, y5

1 1 y
* y 1 1 * y E10, E11,
* 21 31 52
8 9

D1, 1 Perceived
21 Attitude
usefulness v10, y8 v11, y9
* F3 , 2
F2 , 1
42
1 1 * y
31
* 94 D5, 5
*

* 11 D2, 2 Intention 54 Usage

D3, 3
32 F5 , 4 * F6 , 5
21
*
*
1
43
Perceived 31
Subjective D4, 4
ease of use norm
*
F1 , F4 , 3 y
v12 , y10
x y
1
x
11 * 21 1 1 * 73

v1, x1 v2, x2 v8, y6 v9, y7

E1, 1 E2, 2 E8, 6 E9, 7

Fig. 1 Illustrative structural equation model for the technology acceptance model (partial rendition, for discussion purposes)
10
Two alternative conventions are followed in the literature for
designating information in a model graphically. The Bentler-
Weeks (B-W) tradition uses equations to specify a model
(Bentler and Weeks 1980). Table 1 presents the B-W equations
for the TAM in Fig. 1. Notice that 17 equations capture the
variables and system of relationships in Fig. 1. There are 6
latent variables (F1–F6), 12 manifest variables (V1–V12), 5
latent variable disturbances (D1–D5), and 12 manifest variable
disturbances (E1–E11 plus E12 =0). We have loosely followed
the practice in the EQS program for depicting relationships
between latent and manifest variables by use of asterisks,
where the asterisk stands for coefficients to be estimated
(except for one arrow per latent-variable-to-manifest-variable
relationship, which is fixed to 1.0 for scaling purposes).
The other conventional tradition also frequently
employed is LISREL, which relies on equations and matrix
notation (see Table 1). Here explicit differentiation is made
between latent exogenous and endogenous variables, and
between their respective indicators. As we see in Fig. 1 and
Table 1, latent exogenous variables (i.e., those functioning
as independent variables) are labeled with Greek ξ, latent
endogenous variables (those functioning as only dependent
variables or as both independent and dependent variables)
with η, indicators of ξ with x, and indicators of η with y.
Error terms for indicators are δ for x and ε for y. Error terms
for latent endogenous variables are drawn as ζ. Depending
on custom, some researchers call error terms disturbances
or residuals. The δ’s and ε’s are also termed errors in
variables or measurement error, whereas the ζ’s are termed
errors in equations or theoretical error.
Relationships between latent variables and their respective
indicators are presented as lxij for ξ and x, and lyij for η and y.
The λ’s are coefficients expressing the strength of correspon-
dence between latent variables and their indicators. Often
they are referred to as factor loadings. All measures shown in
Fig. 1 “reflect” their hypothesized latent variables and are
often called reflective indicators. Notice that the equation
relating an indicator to its corresponding factor can be
written as follows: y ¼ ly h þ ". This might be interpreted as
claiming that variation in measure, y, is produced by both the
factor and error. The factor and error term are assumed to be
uncorrelated by convention, an assumption needed to make
models tractable. Later we will consider an alternative
measurement model for equations linking latent varia-
bles to their measures: a formative model positing that
latent variables are functions of their indicators.
Finally, relationships among latent variables in the
LISREL tradition are of two types. For relationships
showing the effect of an exogenous latent variable on an
endogenous latent variable, such as the impact of perceived
ease of use on perceived usefulness (see Fig. 1), the symbol
is γ. For relationships showing the effects of one
endogenous latent variable on another endogenous latent
J. of the Acad. Mark. Sci. (2012) 40:8–34
variable, such as the effect of attitude on intention in Fig. 1,
the symbol is β. The γ’s and β’s are regression coefficients,
but unlike seemingly similar coefficients in traditional
multiple regression, where the independent and dependent
variables are observed variables and the regression coef-
ficients can be contaminated by measurement error, the γ’s
and β’s are corrected for the unreliability of the indicators.
With experience, the numerous above mentioned conven-
tions will become second nature. A number of our former
students, who are now professors, have gone out of their way to
tell us that although some learned earlier to graphically program
SEMs before taking our classes, they now recommend that one
not initially rely on graphical techniques because doing so is
“too easy.” They claim that not only can reliance on graphical
techniques lead to specification errors, but also one does not
gain the depth of learning and intuition that accrues when one
internalizes the equations and matrixes underlying SEMs.
Benefits of SEMs
In pursuit of knowledge, every day something is acquired;
in pursuit of wisdom, every day something is dropped.
Lau Tzu, 6th century BC
To motivate the study and use of SEMs, we offer the
following comments. SEMs are not new in the sense that they
are part of the existing family of multivariate statistical
techniques. Indeed, most parametric statistics can be accom-
plished by use of SEMs, so one benefit is that SEMs are generic
tools and provide a broad, integrative function conveying the
synergy and complementarity among many different statistical
methods. These notions occasionally get lost in the oft-made
distinction between so-called first-generation statistical methods
(e.g., correlation analysis, exploratory factor analysis, multiple
regression, ANOVA, canonical correlation analysis) and
second-generation methods (i.e., SEMs: confirmatory factor
analysis and structural equation models). The former are special
cases of the latter, and common SEM programs can be used to
perform most classical statistical analyses if desired.
Yet there are some differences to note. The use of SEMs
yields benefits not possible with first-generation statistical
methods. One important benefit is that it is possible to take
into account types of error confounding first-generation
procedures. For example, random or measurement error in
indicators of latent variables can be modeled and estimated
explicitly. Systematic or method error can also be repre-
sented. The result is that focal parameters corresponding to
hypotheses are purged of particular kinds of bias, and
certain errors in inference avoided. For instance, the
downward biases in coefficients in multiple regressions
are often corrected for measurement error in SEM analyses,
J. of the Acad. Mark. Sci. (2012) 40:8–34 11

Table 1 Equation and matrix representation for technology acceptance model in Fig. 1

Measurement model: Structural model:

Bentler-Weeks representation
V1 ¼ 1F1 þE1 F2 ¼  F1 þD1
V2 ¼  F1 þE2 F3 ¼  F1 þ  F2 þ D2
V3 ¼ 1F2 þE3 F4 ¼  F1 þ  F2 þ D3
V4 ¼  F2 þE4 F5 ¼  F3 þ  F4 þ D4
V5 ¼  F2 þE5 F6 ¼  F5 þD5
V6 ¼ 1F3 þE6
V7 ¼  F3 þE7
V8 ¼1F4 þE8
V9 ¼  F4 þE9
V10 ¼1F5 þE10
V11 ¼  F5 þE11
V12 ¼F6 þ0
LISREL representation
x1 ¼ x þ d 1 η1 ¼ g 11 x þ z 1
x2 ¼ lx21 x þ d 2 η2 ¼ b21 η1 þ g 21 x þ z 2
η3 ¼ b31 η1 þ g 31 x þ z 3
y1 ¼ η1 þ "1 η4 ¼ b42 η2 þ b43 η3 þ z 4
y2 ¼ ly21 η1 þ "2 η5 ¼ b54 η4 þ z 5
y3 ¼ ly31 η1 þ "3
y4 ¼ η2 þ "4
y5 ¼ ly52 η2 þ "5
y6 ¼ η3 þ "6
y7 ¼ ly73 η3 þ "7
y8 ¼ η4 þ "8
y9 ¼ ly94 η4 þ "9
y10 ¼ η5 þ 0
Matrixes
x¼l x x þ d y ¼l y h þ e
h ¼ Bh þ G x þ z
2 3 2 3 2 3
y1 1 0 0 0 0 "1
6 y2 7 6 ly21 0 0 0 0 7 6 "2 7
6 7 6 7 6 7
6 y3 7 6 ly31 0 0 0 0 72 3 6 "3 7
6 7 6 7 η1 6 7
6 y4 7 6 0 1 0 0 0 7 6 "4 7



 6 7 6 76 η 7 6 7
x1 1 d 6 y5 7 6 0 ly 0 0 0 76 2 7 6 "5 7
¼ xþ 1 6 7¼6 52 76 η3 7 þ 6 7
x2 x
l21 d2 6 y6 7 6 0 0 1 0 0 76 7 6 "6 7
6 7 6 74 5 6 7
6 y7 7 6 0 0 ly 0 0 7 η4 6 "7 7
6 7 6 7 6 7
6 y8 7 6 0 0 0 1 0 7 η5
73
6 "8 7
6 7 6 7 6 7
4 y9 5 4 0 0 0 ly 0 5 4 "9 5
94
y10 0 0 0 0 1 0
2 3 2 3
0 0 0 0 0 y 11
6 b21 0 0 0 07 6 0 y 22 7
6 7 6 7
B¼6
6 b31 0 0 0 077 y ¼6
6 0 y 32 y 33 7
7
4 0 b 42 b 43 0 05 40 0 0 y 44 5
0 0 0 b54 0 0 0 0 0 y 55

0
Γ ¼ ½ g 11 g 21 g 31 0 0 
f ¼ f11 ; qd ¼ ½ qd11 q d22 diag
q" ¼ ½ q"11 q"22 q"33 q"44 q"55 q"66 q"77 q"88 q"99 0 diag
12
such that some failures to detect true effects under the
former will not occur under the latter.1 Other advantages of
SEMs over first-generation methods include provision of
more straightforward tests of mediation, methods to assess
construct validity in broader and deeper ways than possible
with traditional correlation analyses, and ways to correct for
systematic bias in tests of substantive hypotheses.
By way of summary, we provide a list of benefits that
SEM use may offer:
1. Provides integrative function (a single umbrella of
methods under leading programs).
2. Helps researchers to be more precise in their specification
of hypotheses and operationalizations of constructs.
3. Takes into account reliability of measures in tests of
hypotheses in ways going beyond the averaging of
multi-measures of constructs.
4. Guides exploratory and confirmatory research in a
manner combining self-insight and modeling skills with
theory. Works well under the philosophy of discovery
or the philosophy of confirmation.
5. Often suggests novel hypotheses originally not consid-
ered and opens up new avenues for research.
6. Is useful in experimental or survey research, cross-
sectional or longitudinal studies, measurement or
hypothesis testing endeavors, within or across groups
and institutional or cultural contexts.
7. Is easy to use.
8. Is fun.
Hereafter we consider many practical and technical
issues in the use and interpretation of SEMs.
Philosophical foundations
Truth, Existence, Knowledge, Causality, Identity, Good-
ness: these are the principal notions which philosophers
examine. Intelligent persons normally have thoughtful
and useful lives without pausing to look into these
notions and into the connections between them. Once
one starts to look into them, it is difficult to stop.
Stuart Hampshire
A primary objective of virtually all research is to make
sense of some aspect of the world of experience. SEMs
provide a useful forum for sense-making and in so doing link
philosophy of science criteria to theoretical and empirical
research. A useful way to construe sense-making is as a
1 are inferred from estimation procedures with data. They are
Although parameter estimates in simple regression are always biased
downward to the extent of measurement error, no general statements
in this regard can be made with respect to multiple regression.
J. of the Acad. Mark. Sci. (2012) 40:8–34
holistic process for discerning meaning from any research
enterprise. In this section, we discuss three types of meaning
which infuse sense-making: theoretical meaning, empirical
meaning, and spurious meaning. While it is possible to
discuss each type of meaning in isolation, it is important to
incorporate all senses of meaning into any research effort,
with an aim to being as balanced and inclusive as possible.
The different senses of meaning function dialectically to
constrain and empower each other.
The following presentation is by necessity brief and
abstract. The reader may wish to skip this section for
now and come back to it later. But because the holistic
construal sketched below can be thought of as the
raison d’être or Shakespearean “be-all and end-all” for
SEMs, it may prove useful to master the mindset
undergirding the presentation herein. That is, the holistic
construal can serve to bind theory and method and in so
doing transcend what happens in the world and our
ability to comprehend it (for more elaboration on the ideas see
Bagozzi 1980, 1984, 2011a, b; Bagozzi and Phillips 1982).
Figure 2 summarizes the ideas behind the holistic construal.
To simplify the discussion, consider that a researcher proposes
that a focal construct, F, is a mediator of the relationship of
antecedent, A, to consequence, C. The researcher’s goal may
be to formulate a conceptual model and explain the mediation
process. This would be normally done verbally, perhaps
augmented with symbols of variables and equations, to
provide a theoretical development of hypotheses for study.
The theoretical meaning of the variables and proposed
mediation linkages and processes comes about in the
following way. Each concept in the theory—A, F, and C—
and its conceptualization attains part of its interpretation
through specification of its characterization and a theoret-
ical definition (depicted as CS and triangles in Fig. 2).
Sentences specifying the meanings of A, F, and C might
designate attributes or characteristics of the concepts, a
structure organizing the attributes, and dispositions (e.g.,
powers or liabilities) of the concepts as a whole or of their
attributes. The meaning of any focal construct, such as F,
resides also in (1) the antecedents, determinants, or causes
of F, (2) the consequences, implications, or results of F, and
(3) the associative (i.e., nonfunctional, noncausal) links to F
(the last are not shown in Fig. 2). That is, theoretical meaning
accrues via the connections that each theoretical variable has
with other theoretical variables in a nomological network and
is expressed through indication of the content of the
hypotheses linking a concept to other concepts and the
rationales for hypotheses (see H and R in Fig. 2). Notice that
γ accompanies the A to F path and β alludes to the F to C
path. The γ and β symbolize parameter estimates and thus
not the theoretical relations in question but rather empirical
measures or implications of H and R.
J. of the Acad. Mark. Sci. (2012) 40:8–34
Fig. 2 A framework for think-
ing about theoretical, empirical,
and spurious meaning. Source:
Bagozzi (2011a)
Empirical meaning refers to the observational content
affiliated with theoretical constructs after spurious meaning
(discussed below), if any, has been removed. This is
done formally through specification of correspondence
rules joining theoretical concepts to observational con-
cepts. Observational concepts are abstract definitions or
interpretations of indicators or measures. Correspon-
dence rules are not part of either the theoretical
meaning of a theoretical concept or an observation,
per se, but rather they constitute auxiliary hypotheses
concerning additional theoretical mechanisms (e.g., the
theory of instrumentation or method used to operation-
alize a theoretical construct), empirical criteria (e.g.,
observational procedures or descriptive conventions), and a
rule connecting mechanisms and criteria (see Bagozzi 2011a).
In addition to correspondence rules, factor loadings are
shown connecting latent variables to manifest variables in
Fig. 2. A factor loading is an inferred parameter estimated
from empirical associations among observed variables. It is
in a sense an imperfect implication of the meaning of a
correspondence rule, and even when measurement error in a
SEM is negligible, a factor loading may not capture fully
the meaning of the correspondence rule, because some
aspects of empirical meaning reside also in the theoretical
13
content of the rule. In this sense, there is some surplus
meaning not entirely captured in a factor loading. All this
suggests that one should incorporate formal rules and
conceptualization procedures when specifying measures of
latent variables. For example, such criteria should be met as
logical deducibility of observations from the conceptual
definition of a theoretical construct, and consistency and
comparability of levels of abstraction for multiple measures
of a construct (see Bagozzi and Edwards 1998, pp. 79–82).
Spurious meaning refers to contamination of empirical
meaning and resides in one or more of three sources:
random error, systematic error, and measure specificity.
Returning to our general measurement equation, where
x ¼lx x þ d or y ¼ly h þ ", we can summarize the three
sources of spurious meaning with the following equation:
d or " ¼ e þ s þ m
where e is a random component, s is a component specific
to each measure, and m is a component specific to
systematic error (e.g., method bias). Researchers using
multiple regression or ANOVA often assume that s and m
are small in comparison to e and therefore can be ignored,
but this is an assumption seldom met, and in any case it
would be best to estimate the magnitudes of the sources of
14 J. of the Acad. Mark. Sci. (2012) 40:8–34

error, which is possible in many SEMs (e.g., Bagozzi et al.

1991a, 1999).
Why is it important to consider theoretical meaning and
differentiate it from other kinds of meaning? One reason is
that it emphasizes that which is to be explained and ultimately
measured and tested. In particular it focuses on the content of
a conceptualization and its theoretical integrity, and it does so
in a way avoiding confounding with empirical issues and
contamination in the measurement or testing process. At the
same time, scrutiny is placed on observational procedures and
ways to circumvent biases and threats to validity. Finally, the
three senses of meaning are interdependent and synergistic. A
dialectic tension is built into the holistic construal such that
theoretical, empirical, and spurious meanings constrain and
inform each other. The result is that theory development and
empirical aspects of the research enterprise are brought
together in a way that promotes speculation but is guided by
appraisals and scientific standards, thereby making research
an ongoing process of interconnected steps of inquiry,
confirmation, refutation, and (temporary) synthesis. Fig. 3 Example single-factor confirmatory factor analysis model
(reflective model)

Measurement CFA model can be used to test many interesting hypotheses.

Many research aims can be achieved by use of SEMs
strictly for measurement purposes. Much of what we say
below, however, applies also to other uses of SEMS such as
prediction and explanation.
Confirmatory factor analysis model
Consider the issue of how to measure a theoretical variable
in a study. The confirmatory factor analysis (CFA) model is
useful in this regard. Figure 3 depicts a single-factor CFA
where we show four measures or indicators for purposes of
discussion. We begin with the reflective model case and
have omitted designating each indicator with a Vi, relying
on only xi’s for simplicity.
In traditional analyses such as multiple regression and
ANOVA, researchers typically average all measures of a
variable or scale. Justification for such practices rests on
showing first that all items load on a single factor by use of
exploratory factor analysis and then achieving satisfactory
reliability, such as is demonstrated by Cronbach alpha
values greater than .70.
A more rigorous approach is to perform a CFA, where
whether a set of indicators shares enough common variance to
be considered measures of a single factor is formally tested. A
failure to reject such a model on the basis of a χ2-test or other
goodness-of-fit indexes (discussed below) establishes the
unidimensionality of the indicators. Reliability of the indica-
tors can be computed by use of the factor loadings and error
variances according to a formula we consider below. The
One use is to establish or verify the dimensionality of scales.
Many scales are hypothesized to be unidimensional; the
single-factor CFA can be used to test this hypothesis.
To grasp the ideas behind the CFA model and its benefits
and implications, consider what happens when we apply the
model of Fig. 3 to the data in Table 2. The correlations
below the diagonal are for the measures of attitude toward
giving blood taken by 7-point semantic differential items:
unpleasant-pleasant, sad-happy, bad-good, and unfavorable-
favorable. The data were collected from 155 respondents
who were emotionally aroused experimentally, and the
hypothesis is that all four measures should load satisfacto-
rily on one factor. The left-hand panel of Table 3 presents
the findings. Based on the goodness-of-fit indexes, we
cannot reject the hypothesis of a single factor underlying
the data: χ2(2)=2.22, p=.33, RMSEA=.03, NNFI=1.00,
CFI=1.00, and SRMR=.014 (we will discuss goodness-of-
fit measures and their interpretation later in the article).
Factor loadings are high (.76–.87) and statistically signif-
icant, and error variances are relatively low (.24–.42).
Table 2 Correlations among attitudinal measures used to illustrate
one-factor and two-factor models (see Figs. 3 and 4)
Pleasant-unpleasant 1.000 .851 .540 .530
Happy-sad .655 1.000 .499 .513
Good-bad .650 .769 1.000 .892
Favorable-unfavorable .640 .677 .687 1.000
Below diagonal for N=155 respondents exposed to emotional arousal;
above diagonal for N=174 respondents not exposed to emotional arousal
J. of the Acad. Mark. Sci. (2012) 40:8–34 15

Table 3 Summary of findings for single-factor and two-factor models applied to the data shown in Table 2 (see Figs. 3 and 4)

Aroused respondents Unaroused respondents

Single-factor Two-factor Single-factor Two-factor

λ11 .76(.07) λ11 .76(.07) λ11 .93(.06) λ11 .95(.06)

λ21 .87(.07) λ21 .86(.07) λ21 .90 (.06) λ21 .90(.07)
λ31 .87(.07) λ32 .87(.07) λ31 .62(.07) λ32 .95(.06)
λ41 .79(.07) λ42 .79(.07) λ41 .62(.07) λ42 .94(.06)
θd11 .42(.06) θd11 .42(.06) θd11 .14(.04) θd 11 .10(.06)
θd22 .25(.04) θd22 .26(.05) θd22 .19(.04) θd 22 .20(.06)
θd33 .24(.04) θd33 .25(.05) θd33 .62(.07) θd 33 .10(.05)
θd44 .37(.05) θd44 .37(.05) θd33 .62(.07) θd 44 .11(.05)
ϕ21 1.01(.03) ϕ21 .60(.06)
χ2(df) 2.22(2), p=.33 2.03(1), p=.15 207.71(2), p=.00 1.55(1), p=.21
RMSEA .03 .08 .62 .06
NNFI 1.00 .99 .39 .99
CFI 1.00 1.00 .54 1.00
SRMR .014 .013 .16 .004

Standard errors in parentheses; ϕ is standardized

The correlations above the diagonal in Table 2 are for a Table 2? Column two in Table 3 shows the results of this
different sample of 174 respondents who were not model. Notice that this model fits the data well, although
emotionally aroused experimentally. The hypothesis is that the RMSEA is somewhat higher than desirable: χ2(1)=
two distinct factors should result: one corresponding to 2.03, p=.15, RMSEA=.08, NNFI=.99, CFI=1.00, and
affective attitude (unpleasant-pleasant, sad-happy), and one SRMR=.013. The choice between the one-factor and two-
conforming to evaluative attitude (bad-good, unfavorable- factor models for the data presented below the diagonal in
favorable). Figure 4 illustrates the two-factor model. See
Bagozzi (1994, 1996) for a rationale explaining one-factor
and two-factor representations in a similar study. The last
column in Table 3 shows the findings for this model, where
we see that the two-factor model fits well: χ2(1)=1.55, p=.21,
RMSEA=.06, NNFI=.99, CFI=1.00, and SRMR=.004. The
factor loadings are high, error variance is low, and the factors
correlate ϕ21 =.60 (s.e.=.06). Because one expects affective
and evaluative reactions to a single target (in this case, “giving
blood”) to be positively and at least moderately highly
correlated, ϕ=.60 seems reasonable. A confidence interval
around the value, .48≤ϕ21 ≤.72, suggests that the factors
correlate much below 1.00 and therefore are distinct (one
could alternatively do a χ2-difference test to ascertain this).
What would have happened if we tested a one-factor
model on the data presented above the diagonal in Table 2?
The findings are presented in the third column of Table 3,
where it can be seen that the model fits poorly: χ2(2)=
207.71, p=.00, RMSEA=.62, NNFI=.39, CFI=.54, and
SRMR=.16. Thus, the data support a two-factor model but
fail to support a one-factor model. The differences in
goodness-of-fit indexes and the χ2 test allow us to make a
choice between the two models in this case.
In a parallel fashion, we might ask: what if a two-factor
model were fit to the data presented below the diagonal in Fig. 4 Two-factor confirmatory factor analysis model (reflective model)
16
Table 2 is not easy to make based on the goodness-of-fit
and χ2 tests, and it may seem that the one-factor and two-factor
models are undifferentiated in this instance. However, it is
possible to make a choice between the one-factor and two-
factor models on the basis of an inspection of the findings.
Notice in Table 3, column 2, that ϕ21 =1.01 with s.e.=.03,
which suggests that the proposed factors are in effect perfectly
correlated. In other words, both the one-factor and two-factor
model results support the case for a single factor.
An issue to consider is whether a model and its
parameters are identified. A model is identified if all its
freely estimated parameters are identified in the sense that it
is not possible for two or more distinct sets of parameter
estimates to reproduce the same population variance-
covariance matrix. A model where one or more parameters
are not identified is termed underidentified, and programs
cannot provide reliable parameter estimates for all param-
eters. A model where parameter estimates can be solved for
uniquely in terms of observed variances and covariances is
called identified. When there are exactly as many unique
ways to solve for parameters as there are parameters, the
model is just identified. When there are redundant
restrictions in a model that permit solving for all parame-
ters, such that one or more can be solved for in multiple
ways, we term the model overidentified. Underidentified,
just identified, and overidentified models have negative,
zero, and positive degrees of freedom, respectively. Only
overidentified models can be used to test the overall fit of
models (e.g., by use of χ2 tests). For single-factor models
with normal restrictions, at least four indicators are needed
to achieve overidentification; three-indicator single-factor
models are just identified. Some scales are multidimensional,
and CFAs with multiple factors can be used to test these
models. The simplest overidentified two-factor model has two
indicators per factor and 1 degree of freedom (e.g., see Fig. 4).
An important issue in specifying CFA models and causal
models is to determine the number of indicators per factor.
Of course, for testing an existing scale, the number of
indicators is given by the number of items in the scale. But
when a researcher designs his/her own scale, adds items to
or subtracts items from an existing scale, or proposes
measures of a factor, he/she must decide how many
indicators to specify. A number of trade-offs must be taken
into account in this regard. Too few indicators per factor
may produce unstable solutions and lead to failures of
programs to converge, especially in complex models with
many latent variables and paths. For this reason, some
researchers advocate using at least three indicators per
factor. Another reason in support of using more indicators
per factor is that with a greater number of indicators per
factor, it is more difficult to achieve convergent and
discriminant validity, and thus we obtain a tougher test of
our hypotheses with more indicators per factor. On the other
J. of the Acad. Mark. Sci. (2012) 40:8–34
hand, the more indicators per factor, the more parameters to
be estimated and the greater the sample size required to test
models. Likewise, the more indicators per factor, the more
effort needed in measurement, such as adding more items to
questionnaires, which may not be feasible in some studies.
Therefore, there are practical limitations to adding more
indicators. Moreover, some latent variables will have only a
limited number of measures available by design or other
constraints. As a consequence, in practice one sees a great
variety in the number of indicators employed per factor in
various investigations. Note, too, that before the advent of
SEMs, researchers using multiple regression, ANOVA, and
other first-generation statistical methods were forced to use
single indicators per variable, so even with a few indicators
in SEMs, we still achieve advantages over first-generation
procedures. The latter, in fact, fail to take into account
measurement error in tests of hypotheses.
A frequent practical problem is that some scales or latent
variables have too many indicators. For example, certain
personality scales, believed to be unidimensional, have 20 or
more items. It may be unreasonable to expect that all such
items measure a factor in a way that sustains unidimension-
ality. Further, sample sizes larger than practically obtainable
may be needed to estimate all the parameters associated with
models that have many items per factor. Thus researchers
sometimes aggregate (e.g., average or sum) items into subsets
or parcels to use as indicators of factors. For example, imagine
that one variable in a larger theory to be tested has 12 items,
and it is not feasible to have each item load on that factor in the
larger model. If an exploratory factor analysis, or better yet a
confirmatory factor analysis, shows that a one-factor model
fits the 12 items well, then some basis exists for treating the 12
items as parallel measures, and the 12 items might be treated
as equivalent. Given this, it might be useful to form three
indicators of the factor in question, say, by selecting four items
each per indicator and averaging the respective items. This
practice reduces the number of parameters to be estimated in
the larger model from 24 to 6, requires a smaller sample size to
test the model, and may smooth out some of the error in items
as well. For discussions and examples of this practice, see
Bagozzi and Heatherton (1994), Bagozzi and Edwards
(1998), and Little et al. (2002).
Reliability
Cronbach’s alpha and other formulae for computing the
reliability of measures were derived to ascertain the internal
consistency of items. It has become commonplace to report
the reliabilities of measures in any study, even when SEMs are
used. In fact, the use of SEMs makes such a practice
unnecessary or redundant, because the information provided
in factor loadings and error variances incorporates reliability
so to speak. Nevertheless, because researchers often choose to
J. of the Acad. Mark. Sci. (2012) 40:8–34
present explicit evidence of reliability in a traditional sense,
and many journals require this, we will briefly draw linkages
between reliability and SEMs.
The findings from a CFA can be used to compute indexes
of reliability for a measure of a factor. The reliability of an
individual item of a factor can be computed as
r l2i varðfactorÞ
¼ of latent variables is a controversial issue. The models shown
indicator i
li varðfactorÞ þ qii
2
Where λi is the factor loading connecting an indicator to its
hypothesized factor and θii is the variance of the error term
corresponding to the indicator. For instance, the reliability of
the third measure of the single factor for the analysis of the
sample of aroused respondentssummarized in Table 3 can be
computed as rx3 ¼ :872 ð1Þ= :872 ð1Þ þ :24 ¼ :76, where
we have made use of the fact that the factor was standardized
in the analyses. Some of the SEM programs provide estimates
of item reliability, calling them squared multiple correlations.
Analogously, the reliability of all the items of a factor
(sometimes termed composite reliability) is given by
P
ð lijÞ2 varðfactorÞ
rcomposite ¼ P P
ð lijÞ2 varðfactorÞ þ qii
where λij refers to factor loading i on factor j. For example, the
composite reliability for the two indicators of the first factor of
the two-factor solution of the data on unaroused respondents
summarized in Table  3 can be computed as rx1þx2 ¼
ð:95 þ :90Þ2 ð1Þ = ð:95 þ :90Þ2 þ ð:10 þ :20Þ ¼ :92.
There are no universally accepted standards as to what
minimally acceptable indicator and composite reliabilities
should be. Because individual indicator reliabilities can be
relatively low at times, yet the factor to which they correspond
might perform satisfactorily in a larger model, somewhat more
emphasis might be placed on composite reliability. Here we
might use the oft-cited classic reliability standard of .70 or
greater for a satisfactory composite reliability, although
acceptable reliabilities somewhat below this value may be
obtained when an overall causal or CFA model fits satisfac-
torily. For individual indicator reliability, standardized load-
ings of .70 or greater, so as to achieve a reliability of at least
.50, seem ideal, with the logic being that one attains about
50% explained variance in the respective measure as a
function of its factor (and avoids having an indicator with
more than 50% error). However in practice, for large models
with many latent variables and indicators, one will occasion-
ally find loadings as low as .50 that still occur within the
context of a satisfactory fitting overall model. Looking at only
reliability, loadings of .70, .70, and .50 on a factor still yield a
composite reliability of .67, for instance. So cut-off values for
indicator and composite reliability might be taken with some
leeway in mind. In any case, we feel that old standards for
Cronbach’s alpha and other formulae for reliability should not
17
be applied rigidly to SEMs, and indeed focus should be placed
more on the hypotheses under tests in, and goodness-of-fit of,
any SEM.
Reflective and formative indicators
The choice of whether to use reflective or formative indicators
in Figs. 1, 3, and 4 use reflective indicators; indicators are
functions of latent variables plus error, which is close in spirit
to classical test-score theory (Lord and Novick 1968)
and the common factor model (McDonald 1999). Figure 5
shows a model with formative indicators, where we have
taken the special case of what is known as the MIMIC
(multiple-indicator, multiple-cause) model (e.g., Bagozzi
et al. 1981). A latent variable might be socio-economic
status, which is measured by education, income, and
occupational prestige. In a formative model, a latent
variable is a function of its proposed measures. Unlike
the reflective measurement case, where a factor and its
indicators can stand alone in the sense of being subject to
tests of goodness-of-fit and yielding parameter estimates,
the formative measurement case requires that a latent
variable with formative indicators also includes either
reflective indicators or additional latent variables that have
reflective indicators, which are predicted by the latent variable
with formative indicators, in order for a model to be tested
against data and parameters estimated. A limiting case of the
formative model is principal components analysis.
A brief summary of the controversy follows. Some
researchers believe that formative indicator models are
fundamentally flawed and never should be used, and thus they
recommend use only of reflective indicators (e.g., Howell et al.
2007a, b). The argument is that the regression parameters
relating formative measures to a factor are not only functions
of the intended connections but also depend on information
contained in measures of other latent variables, which are
predicted by the latent variable alleged to be measured
formatively. As a result, such models are both ambiguous and
indeterminant with regard to replicability to a large extent.
Other researchers believe that some latent variables are by
nature related to their measures formatively in an a priori
conceptual sense, and therefore formative measurement is not
only permitted but in a sense called for (e.g., Diamantopoulos
and Siguaw 2006; Podsakoff et al. 2003).
While agreeing with Howell et al. (2007a) that formative
measurement parameters are dependent on other measures
in an SEM, which introduces ambiguity, Bagozzi (2007)
argues that the special case of the MIMIC model can be
meaningful, if one is interested primarily in the prediction
of a linear combination of a set of dependent variables by a
linear combination of a set of independent variables. The
choice between formative and reflective indicators seems also
18
to depend on the metaphysical or ontological assumptions one
is willing to make (Bagozzi 2011a; Diamantopoulos and
Winklhofer 2001; Petter et al. 2007). Discussion of these
esoteric issues is beyond the scope of this article, and the
reader is referred to the aforementioned articles. But is
should be recognized that formative indicator models do not
yield meaningful measures of reliability and pose problems
in terms of doing cross-validations, generalizations, and
testing for construct validity (Bagozzi 2011a). For a
presentation and discussion of alternative representations of
formative models, see Bagozzi (2011a).
To illustrate the MIMIC model shown in Fig. 5, we
applied the model to the data shown in Table 4. As
summarized in Table 5, the model fits well: χ2(6)=13.78,
p = .032, RMSEA= .066, NNFI = .98, CFI = .99, and
SRMR=.028. Notice that education, income, and occupation
are each significantly related to quality of diet, extent of
exercise, and medication compliance through the mathemat-
ical transformation function performed by the latent
variable, η. In estimating this model, we followed the
normalization restriction fixing the variance of ζ to 1
suggested by Jöreskog and Goldberger (1975, p. 632).
Construct validity
Do not confuse the finger pointing to the moon with
the moon.
Ancient Chinese proverb
Construct validity is the extent to which indicators of a
construct measure what they are purported to measure. Unlike
reliability, which is limited to the degree of agreement among
a set of measures of a single construct, construct validity
addresses both the degree of agreement of indicators
hypothesized to measure a construct and the distinction
between those indicators and indicators of a different
construct(s). The notion is that we obtain a reasonable sense
of the validity of indicators of a construct when the measures
converge in the proper way and yet do not relate too highly
with measures of something else. Implied in the idea of
convergence is the logical implication that multiple measures
of the same phenomenon should be highly correlated and
correlated relatively uniformly in the sense of supporting a
single factor, but not two or more factors. At the same time,
Fig. 5 Formative factor analysis
model
J. of the Acad. Mark. Sci. (2012) 40:8–34
correlations of measures of a proposed factor with measures of
other factors should not only be significantly lower than the
level of correlations establishing convergence, but also the
pattern of correlations of measures across factors should be
proportional in the sense of being relatively similar in
magnitude. Usually, when considering reliability of indicators,
the indicators come from the administration of a single
procedure or method (e.g., a Likert disagree-agree scale of
multiple items). This practice is not very demanding and risks
common method biases. That is, convergence of measures
may be as much a function of the singular method applied as it
is of both the nature of the construct under scrutiny and the
ability of the indicators to measure that construct. But when a
single measurement procedure is used, it is not possible to
disentangle true convergence from method bias. Construct
validity procedures strive to overcome these drawbacks.
Construct validity methods were developed to consider the
degree of convergence for a set of measures of a hypothesized
construct and of discrimination between those measures and
measures of a different construct. In the fullest implementation
of a construct validation study, measures of a construct under
scrutiny and measures of other constructs are obtained by
multiple methods such that two or more methods are maximally
similar and two or more are maximally different. Such an
approach provides the most demanding test of validity. It is
easier (perhaps too easy) to obtain convergence when two or
more methods are similar (e.g., when a Likert scale and a
semantic differential scale are used) than when they differ
(e.g., use of a Likert scale of self-reports combined with peer
or expert ratings of the persons responding to the Likert scale
items). Likewise, it is more difficult to verify discrimination
when two or more methods are similar than when different.
Further, discrimination is harder to demonstrate when two or
more constructs should be highly correlated, yet distinct,
according to theory. As a consequence, the most informed
construct validity analyses employ maximally similar and
maximally dissimilar methods and include closely related
constructs to yield a rigorous test of construct validity.
As an illustration, we applied the additive trait-method-
error construct validity model shown in Fig. 6 to the data
summarized in Table 6. The findings for this model can be
seen in the second column of Table 7. This model fits very
well on the basis of the χ2 statistic and four indexes of
goodness-of-fit: χ2(12) = 19.55, p = .08, RMSEA= .054,
J. of the Acad. Mark. Sci. (2012) 40:8–34 19

Table 4 Correlations for illustration of formative indicators under a MIMIC model (see Fig. 5)

Education 1.00
Income .59 1.00
Occupation .52 .47 1.00
Quality of diet .38 .39 .35 1.00
Extent of exercise .58 .62 .56 .69 1.00
Medication compliance .52 .57 .49 .64 .79 1.00

N=124

NNFI=.99, CFI=1.00, and SRMR=.04. Notice that all nine
factor loadings relating indicators to the hypothesized latent
variables of attitude, desire, and intention are high in value
and statistically significant (.74–.96), and all nine
corresponding error variances (θε1–θε9) are relatively low
in value (−.01–.44). This means that most of the variation
in measures of hypothesized factors is due to the phenomena
being measured and little is due to measurement error. At the
same time, because the factor loadings corresponding to the
three methods of measurement—semantic differential, Likert,
peer evaluation—are low to moderate in value (.08–.59),
method bias is on average relatively low. All in all, one may
conclude that the measures of attitude, desire, and intention
achieve satisfactory convergent validity. Inspection of
the standardized correlations among the three constructs
(ψ31, ψ21, ψ32) reveals that we can reject the hypothesis
that the factors are perfectly correlated: ψ31 =.28 (s.e.=.07),
ψ21 =.37(s.e.=.07), and ψ32 =.55(s.e.=.06). Indeed, the
correlations are far below 1.00, as confidence intervals around
the estimated values confirm. Yet according to theoretical
expectations, people’s attitudes, desires, and intentions toward
a target action are positively correlated. Notice, too, consistent
with expectations, that self-report semantic differential and
Likert methods are positively and highly correlated (ψ54 =.66
(s.e.=.13)), whereas peer ratings are correlated with self-
reports at a low level, and in this case not significantly
associated (ψ64 =−.16(s.e.=.44), ψ65 =−1.11(s.e.=1.15)).
To place the test of construct validity in perspective, we
ran a model that hypothesizes that variation in indicators is
due only to latent constructs plus measurement error. This
model is identical to the model shown in Fig. 6, except now
there are no method factors and corresponding factor
loadings. If the indicators load on their hypothesized factors
well and not too highly on the other factors, and thus
achieve convergent and discriminate validity, plus are free
from method bias, the model should fit well. The first
column of Table 7 presents the findings, where it can be
seen that the model, in fact, fits poorly: χ2(24)=241.64,
p=.00, RMSEA=.19, NNFI=.81, CFI=87, and SRMR=.05.
This is consistent with the results of the test of the full model
shown in Fig. 6, which demonstrated the presence of
significant levels of method bias.
The advantage of employing multiple methods in a single
study is that method bias, if any, can be explicitly estimated
and taken into account. Most published studies use a single
method, which makes it impossible to disentangle true
variation from measurement error and method bias. When
using only a single method in a study, it is possible, even
common, to achieve satisfactory model fit. Nevertheless, it is
impossible to discern whether the fit is a consequence of the
hypothesized phenomena under investigation alone, method
bias alone, or a combination of the phenomena and method
bias. Implementation of multiple methods makes it possible to
ascertain the relative contributions.
The construct validity model shown in Fig. 6 is known
as the construct-error-method model or the trait-error-
method model. There are a number of construct validity
models, each with its advantages and disadvantages
(see Bagozzi 2011a, for a description of many of these models).
It turns out that the construct-error-method model can

Table 5 Findings for formative

indicator model under a MIMIC Parameter estimates
model (see Table 4 and Fig. 5) γ1 .36(.09) λ1 .48(.04) θε1 .48(.05)
γ2 .56(.09) λ2 .63(.04) θε2 .10(.03)
γ3 .42(.08) λ3 .56(.04) θε3 .29(.03)
R2diet ¼ :52; R2exercise ¼ :90; R2medication ¼ :71
Goodness-of-fit
χ2(6)=13.78, p=.032
RMSEA=.066
NNFI=.98
CFI=.99
SRMR=.028
20 J. of the Acad. Mark. Sci. (2012) 40:8–34

Fig. 6 Construct validity example for the case of three constructs measured by three methods

be unstable, and often programs will not be able to
converge and find satisfactory solutions. A model that
usually works in such situations and that is frequently
applied is the correlated uniqueness model. The corre-
lated uniqueness model is similar to the construct-error-
method model but differs in two ways. First, no
methods factors are included. Second, the disturbances
corresponding to common methods are allowed to be
correlated. For example, taking method 1 in Fig. 6 as an
illustration, instead of modeling a unique method factor,

Table 6 Correlation matrix for example examining construct validity (see Fig. 6)

Semantic differential
1. Attitude 1.00
2. Desire .35 1.00
3. Intention .30 .58 1.00
Likert
4. Attitude .78 .38 .34 1.00
5. Desire .33 .83 .54 .39 1.00
6. Intention .28 .48 .85 .31 .59 1.00
Peer evaluation
7. Attitude .65 .37 .21 .60 .29 .16 1.00
8. Desire .27 .74 .38 .18 .72 .35 .35 1.00
9. Intention .21 .32 .70 .14 .35 .71 .19 .49 1.00

N=207
J. of the Acad. Mark. Sci. (2012) 40:8–34 21

Table 7 Summary of findings for construct validity illustration (see Table 6 and Fig. 6)

Construct-error Construct-error-method Correlated uniqueness

model model model

λ11 .90(.06) .88(.06) .94(.06)

λ21 .86(.06) .83(.06) .87(.06)
λ31 .71(.06) .74(.06) .75(.06)
λ42 .92(.05) .82(.06) .90(.05)
λ52 .91(.06) .90(.06) .90(.05)
λ62 .79(.06) .96(.06) .88(.06)
λ73 .93(.05) .83(.06) .92(.05)
λ83 .92(.05) .88(.06) .90(.05)
λ93 .76(.06) .89(.06) .85(.06)
λ14 − .08(.06) −
λ44 − .43(.11) −
λ74 − .59(.11) −
λ25 − .27(.07) −
λ55 − .37(.10) −
λ85 − .35(.09) −
λ36 − .11(.07) −
λ66 − .32(.18) −
λ96 − .17(.10) −
θε1 .18(.04) .20(.05) .16(.05) θε1, ε4 =−.06(.02)
θε2 .26(.05) .20(.04) .26(.04) θε1, ε7 =−.05(.02)
θε3 .49(.06) .44(.05) .49(.06) θε4, ε7 =.08(.02)
θε4 .15(.03) .17(.04) .16(.03) θε2, ε5 =.09(.03)
θε5 .18(.03) .05(.03) .20(.03) θε2, ε8 =.04(.02)
θε6 .37(.04) .01(.06) .34(.04) θε5, ε8 =.10(.02)
θε7 .14(.03) -.01(.09) .15(.03) θε3, ε6 =.12(.03)
θε8 .16(.03) .10(.03) .16(.03) θε3, ε9 =.10(.04)
θε9 .43(.05) .18(.04) .40(.05) θε6, ε9 =.25(.04)
ψ31 .35(.07) .28(.07) .35(.07)
ψ21 .44(.06) .37(.07) .43(.06)
ψ32 .62(.05) .55(.06) .56(.05)
ψ64 − -.16(.44) −
ψ54 − .66(.13) −
ψ65 − −1.11(1.15) −
χ2(df) 241.64(24), p=.00 19.55(12), p=.08 40.80(15), p=.00
RMSEA .19 .054 .089
NNFI .81 .99 .96
CFI .87 1.00 .98
SRMR .05 .04 .067

Standard errors in parentheses

we model three correlated errors: θε4ε1, θε7ε1, θε7ε4. With
all three methods taken into account, this means that a
total of nine residuals need to be correlated. Column 3 in
Table 7 presents the findings for the correlated uniqueness
model applied to the data shown in Table 6. This model
does not fit the data well and gives what might be termed a
mediocre fit in that only the NNFI, CFI, and SRMR are
satisfactory, and the RMSEA is somewhat too high in
value. Another problem with this particular application of
the correlated uniqueness model is that some of the
correlated errors are negative and significant, some positive
and significant, even for the same factor. This is difficult to
reconcile and suggests that the model is not appropriate in this
case. But again to reiterate, the correlated uniqueness model is
22
often appropriate in practice, and we present it here for
illustrative purposes.
“Causal” models
Up to this point, we have focused on measurement issues,
with particular emphasis upon the CFA model and its
manifestation as a means for testing scales, computing
reliability, choosing reflective or formative indicators, and
ascertaining construct validity. Because factors are embed-
ded in SEMs, many of the principles discussed above apply
to the topics to which we now turn.
We placed quotation marks around the word causal in
this section’s title to draw attention to the point that SEMs
have applicability to testing causal hypotheses yet are
relevant as well to testing functional relationships,
generalizations, cross-validations, and predictions. Also
we wish to acknowledge that researchers have sometimes
over-claimed the power of SEMs to show causation, and
readers have sometimes been misled in that regard. To
make clear our position, we stress that, like any statistical
procedure, SEMs by themselves do not prove causality.
Statistical procedures need to be deployed along with
sound methodological procedures (e.g., experimentation,
quasi-experiments, longitudinal designs) to support causal
claims. Even here, the issues are complex, and philo-
sophical, theoretical, and operational concerns need to be
scrutinized to interpret any research investigation. As a
consequence, we begin with a discussion of causality
before turning to specific models, issues, and examples of
“causality.”
Causality
A claim of proof of cause and effect must carry with it
an exploration of the mechanism by which the effect
is produced.
William G. Cochran
Researchers using SEMs often interpret relationships
between exogenous and endogenous variables as causal
relationships, and at the same time, they assert that relation-
ships between latent variables and manifest variables are also
causal (e.g., Bagozzi 1980; Edwards and Bagozzi 2000).
However, such claims are particularly acute, contentious, and
in need of further discussion.
Consider first the point of view that relationships among
exogenous and endogenous latent variables are, or at least
can be, causal. Researchers, particularly psychologists, tend
to reserve claims of causality for cases where independent
variables can be manipulated under controlled conditions so
as to observe changes in a dependent variable. Indeed,
J. of the Acad. Mark. Sci. (2012) 40:8–34
experimentation is given pride of place for establishing
causality by psychologists: “Experiments explore the effect
of things that can be manipulated…. Nonmanipulable
events … cannot be causes in experiments because we
cannot deliberately vary them to see what then happens”
(Shadish et al. 2002, p. 7, emphasis in original). This
perspective on causality fits well the manipulability theory in
philosophy (Von Wright 1974; for discussion of various
models of causality, see Bagozzi 1980, ch. 1). However, as a
sole or even primary basis for justifying claims of causality,
one philosopher notes that the manipulability theory “may
well have things backward: the concept of action seems to be
a richer and more complex concept that presupposes the
concept of cause, and an analysis of cause in terms of action
could be accused of circularity” (Audi 1995, p. 111).
Experimentation is certainly a fruitful area where causal
models are applicable (e.g., Bagozzi 1977; Bagozzi and
Yi 1989; Bagozzi et al. 1991b). But even in the
experimental case, a number of issues deserve consideration
(Bagozzi 2010). First, in any experiment, there are likely to
be one or more threats to validity, some unknown or
unaddressed, and as a consequence, a failure to reject the
null hypothesis perhaps is at best fallible and tentative
evidence for causality. Second, among the many competing
interpretations of causation in the philosophy of science, the
assumptions and implications of each constrain the meaning
of causation and at the same time harbor advantages and
disadvantages vis-a-vis other perspectives. So it seems that
even under experimental conditions, it is best not to be
overly sanguine that one is truly observing causality.
Depending on which of the many competing models of
causality one embraces, non-experimental approaches (e.g.,
so called quasi-experiments, cross-sectional and longitudinal
surveys, even qualitative research methods) might satisfy
some requirements for causality better than experimental
methods in certain instances. All of this is simply to say that,
in particular studies, it will not in general be indisputably
clear that an experimental approach accords with all criteria
for causation better than a non-experimental approach does.
It all depends on what model of causality is followed and
how well the competing methods satisfy the criteria under
the models. Note that SEMs can be and have been applied to
experimental data, so we are not necessarily comparing
ANOVA analyses of traditional experimental data to SEM
analyses of augmented experimental data.
There is a further issue worthy of comment concerning
inferences of causality between latent variables. Consider
the following definition of causality, which is perhaps
general enough so as not to run afoul of most of the
competing models of causality. Causality is
the relation between two events that holds when,
given that one occurs, it produces, or brings forth, or
J. of the Acad. Mark. Sci. (2012) 40:8–34
determines, or necessitates the second; equally we say
that once the first has happened the second must
happen or that the second follows on from the first….
[Furthermore, causation] suggest[s] that states of
affairs or objects or facts may also be causally related.
(Blackburn 1994, p. 59)
Most philosophers of science seem to regard causality as
something we infer between physical or material entities or
changes therein, hence reference above to “events,” “states
of affairs,” “objects,” and “facts.” But latent variables are
abstractions or unobservables and are nonmaterial, though
we hope they represent or capture variance observed in
manifest variables. The “causal” parameters derived from
estimation of SEMs (γ’s and β’s) are inferred statistics from
relationships amongst (material) manifest variables (e.g.,
observations or measures of events, states of affairs, etc.).
The parameter estimates of causal relationships between
latent variables might be best construed as imperfect,
fallible signs of whatever causal process one is studying
that occurs between the measures of causes and effects.
SEMs may be specified to correct for random and
systematic errors, and thus γ’s and β’s may be purged of
such errors, but it is important to recognize that causality is
at best estimated (inferred) from the data and predicated on
the nature of the data and methodological conditions
applied in any study. Researchers using SEMs, even under
the control of experimental conditions, should not go too
far in suspending conceptual, empirical, and methodolog-
ical beliefs and assumptions, and in overclaiming causality.
Now to the claim that the relationship between a latent
variable and its manifest or measured variables is causal.
This is a longstanding point of view exposited early on by
Blalock, Bollen, Heise, and many others from the 1970s
and continuing to the present by Edwards and Bagozzi
(2000), Jarvis et al. (2003), and nearly every treatment of
the relationship in the literature. An argument can be made
that use of “causal language” to characterize the relation-
ship between latent and manifest variable is misguided. It
appears that the relationship in question is not causal, per
se, but rather one of hypothetical measurement. That is, the
relationship is between an abstract, unobserved concept and
a concrete, observed measurement; the relationship is partly
logical, partly empirical, and partly theoretical (conceptual),
with the inferred factor loading representing only part of the
empirical meaning of the relationship (Bagozzi 1984, 2011a).
In sum, SEMs represent different relationships that
require a healthy application of interpretation. Relationships
amongst latent exogenous and endogenous variables are
best construed as imperfect representations of causal
relationships, with those founded on experimental data
coming closest to achieving the designation or accolade,
causal, and those arising from survey research given less
23
credence as causal. Further, cross-sectional survey data in
this regard might be better interpreted as yielding evidence
for functional relationships or alternatively relationships
believed to be consistent with causal relationships as far as
they go but not sufficiently strong enough to suggest
causality to the degree that experiments do. Longitudinal
survey data potentially support stronger interpretations than
do cross-sectional data but weaker interpretations than
experimental data in the typical case. To avoid either/or,
categorical thinking leading to overly strong claims of
causality for experimental research or premature dismissal
of survey research as giving no support whatsoever for
causal claims, it is best to think about a causality
continuum, marked by relatively strong (experiments)
and relatively weak (surveys) labels as endpoints, and
longitudinal surveys somewhere in between strong and
weak. Another method with intermediate claims of
causal credence might be field or quasi-experiments,
where somewhat less control than pure experiments is
afforded (e.g., testing hypotheses across multiple groups in
naturalistic settings or between groups formed fortuitously
akin to controlled experiments or where events treated as
independent variable happen fortuitously). SEMs apply in all
these cases and suggest differing bases and different degrees
of evidence for concluding causality. Some sub-criteria for
causality might be better met in naturalistic field experiments
and longitudinal designs than in pure experiments in certain
albeit relatively rare cases.
What about the designation predictive? If a study tests a
theory and exogenous and endogenous variables are linked
significantly according to the theory, we might term the
relationship explanatory (e.g., ξ explains η) and then
decide whether or not, or to what degree, causality can be
claimed. When the exogenous and endogenous variables
are separated in time, the relationship might be called an
explanatory prediction. Nevertheless, we prefer to use the
term prediction when an existing theory leads to the
forecast or discovery of a new phenomenon or outcome.
This latter usage is consistent with some philosophy of
science characterizations of what constitutes a (strong)
theory. That is, a theory that explains what it is supposed to
explain is given less acclaim than one that also leads to new
discoveries or predictions. To keep this important distinc-
tion concerning theories, it seems best to speak of
explanatory prediction and prediction as pointing to still
another continuum for interpretive purposes.
Higher-order causal models
As a bridge between CFA models and causal models,
consider the second-order model displayed in Fig. 7.
Heretofore, our presentation of latent variables always
showed them connected directly to indicators and linked
24
Fig. 7 Second-order confirmatory factor analysis and causal model (see Table 8)
thereby with factor loadings. But in Fig. 7, we illustrate a
second-order factor, ξ, which is only indirectly connected
to manifest variables (through η1–η3).
To understand what a second-order factor is and what
value it has, imagine that we wish to represent the social
identity of consumers with a company and test the effects of
this identity on support for the company’s brand. Social
identity is said to be comprised of three components or
dimensions: cognitive identity (sometimes termed identifica-
tion, or alternatively self-awareness of group membership),
emotional identity (often called affective commitment), and
evaluative identity (alternatively characterized as collective
or group-based esteem) (Bagozzi et al. 2011). In Fig. 7, we
might construe ξ as capturing social identity as a highly
abstract representation of overall social identity arising from
and displayed toward a company, whereas η1–η3 constitute
less abstract, specific components of social identity in the
form of cognitive, affective, and evaluative responses. The
second-order model in Fig. 7 then hypothesizes that social
identity influences brand responses (η4) such as positive
word of mouth about the brand (y7) and resilience to
negative information about the brand (y8).
In addition to representing the structure of a higher-level
construct and its effects on a dependent variable(s), the
second-order model provides a way to address certain
forms of multicollinearity. It is useful to consider two
manifestations of multicollinearity and how higher-order
SEMs might overcome problems with the efficiency of
J. of the Acad. Mark. Sci. (2012) 40:8–34
parameter estimates and avoid false inferences due to
multicollinearity. Multicollinearity may become a problem
when the correlations of independent variables with a
dependent variable are lower than the correlations among
the independent variables. A common outcome in such
cases is that a true positive (negative) effect turns out to be
nonsignificant or even becomes negative (positive), dem-
onstrating reversals in sign.
One form of multicollinearity happens as redundancy
due to multiple measures of the same constructs. The
cognitive, emotional, and evaluative identities shown in
Fig. 7 each have two indicators. If one were to regress
measured brand responses directly on these indicators by
use of multiple regression, then multicollinearity outcomes
might occur. The three first-order identity factors shown in
Fig. 7 not only eliminate these problems but also take into
account the unreliability present in y1–y6. Before the
development of SEMs, researchers investigating hypotheses
implied in Fig. 7 either treated all six indicators as separate
independent variables, averaged the respective pairs of
indicators and used the averages as independent variables,
or ran two regressions: one with one indicator each
corresponding to η1–η3, and a second with the other
indicator each for η1–η3. None of these traditional analyses
takes into account all the information available or corrects
for measurement error.
The other form of multicollinearity arises due to high
correlations among latent variables. Often independent
J. of the Acad. Mark. Sci. (2012) 40:8–34
variables are naturally correlated at high levels due to their
nature. For example, different mental events—cognitions,
motives, attitudes, desires, intentions—are frequently high-
ly correlated because they refer to a common event or target
or because they influence each other. Yet they are distinct
mental events, possibly with different as well as shared
causes and effects. Cognitive, emotional, and evaluative
aspects of social identity are instances of such highly
correlated variables. When the correlations among a set of
latent variables functioning as antecedents are high, multi-
collinearity problems might take place. This source of
redundancy occurs as a result of high correlations between
measures of different constructs.
The second-order model shown in Fig. 7 is most valid
and meaningful when the first-order factors can be
interpreted as dimensions or components of the more
abstract second-order concept. Moreover, the first-order
factors should be relatively highly correlated. When either
or both of the above mentioned criteria are not met, the
second-order factor approach to multicollinearity or for
representing higher-order constructs will not be justified.
To illustrate the second-order model shown in Fig. 7, we
applied it to the data summarized in Table 8. Table 9
presents the results where we can see that the model fits
well: χ2(16)=17.00, p=.39, RMSEA=.013,NNFI=1.00,
CFI=1.00, and SRMR=.013. The high factor loadings
and low error variances demonstrate that the proposed
indicators capture well the constructs that they were
hypothesized to measure. One can obtain a sense of the
relative contribution of each component of social identity to
overall social identity by inspection of the γ’s shown in
Table 9. Here the standardized values suggest that the
components are relatively uniform in their measurement of
social identity: γ1 =.80, γ2 =.85, and γ3 =.80. The amount
of explained variance in brand responses can be computed
as R2 ¼ 1  y hstd4 ¼ 1  :68 ¼ :32:
To show what would have happened if brand
responses (η4) were modeled as direct functions of the
social identity components (η1–η3), without including a
second-order social identity factor (ξ), we ran the model
Table 8 Covariance matrix for second-order confirmatory factor analysis example (see Fig. 7)
Brand response 1 3.69
Brand response 2 2.64 3.53
Cognitive identity 1 1.02 .94 2.31
Cognitive identity 2 1.03 1.04 1.86
Affective identity 1 1.17 1.18 1.50
Affective identity 2 1.33 1.18 1.46
Evaluative identity 1 .96 .97 1.24
Evaluative identity 2 1.09 1.04 1.22
N=254
25
on the data accordingly. This model fit well overall:
χ2(14)=16.99, p=.26, RMSEA=.028,NNFI=1.00, CFI=
1.00, and SRMR=.013. However, consistent with our
portrayal of multicollinearity above, two of three paths
from η1–η3 to η4 were non-significant: β41 =.21(s.e.=.12),
β42 =.26 (s.e.=.11), and β43 =.20 (s.e.=.12).
Illustration of a causal model
We are finally ready to provide an example of a causal
model that is fairly typical of those found in the literature.
Table 10 presents a summary of data for a sample of people
considering the adoption of an innovation. The data were
tested against the TAM in Fig. 1.
Table 11 sums up the findings. Notice first that the model fits
fairly well: χ2(46)=100.35, p=.00, RMSEA=.07,NNFI=.97,
CFI=.98, and SRMR=.04. Factor loadings are high and error
variances low. Perceived ease of use (ξ) significantly
influences perceived usefulness (η1, γ11 =.43 (s.e.=.08)),
attitude (η2, γ21 =.25 (s.e.=.07)), and subjective norm
(η3, γ31 =.30 (s.e.=.09)). In turn, perceived usefulness (η1)
has a strong impact on both attitude (η2, β21 =.36 (s.e.=.07))
and subjective norm (η3, β31 =.23 (s.e.=.08)). Next, attitude
(η2) affects intention (η4, β42 =.46 (s.e.=.08)), as does
subjective norm (η3, β43 =.26 (s.e.=.06)). Finally, intention
(η4) determines usage (η5, β54 =.93 (s.e.=.10)). The respec-
tive explained variances in usefulness, attitude, subjective
norm, intention, and usage are .16, .32, .16, .38, and .34
(calculated as one minus the respective standardized error
variances for η’s).
A number of model fitting and specification issues can
be pointed out in this example. Ideally, the theory that one
develops or draws upon will be strong, hypotheses will be
translated into a causal model well, and care will be taken
in the operationalization of constructs. Under these con-
ditions, the model could fit the data well. But when a
posited model fails to fit the data, what is one to do?
Sometimes one or more indicators might be especially
poor. An inspection of the magnitude and pattern of
loadings on a factor can point to this problem. For example,
2.22
1.38 2.72
1.38 2.40 2.86
1.29 1.42 1.43 2.46
1.18 1.51 1.50 1.96 2.50
26 J. of the Acad. Mark. Sci. (2012) 40:8–34

Table 9 Results for second-order confirmatory factor analysis example (see Table 8 and Fig. 7)

Parameter estimates

Factor loadings Error variances

Unstandardized Standardized Unstandardized Standardized

Cognitive identity 1 1.00a .91 .38(.09) .17

Cognitive identity 2 .96(.06) .90 .43(.09) .19
Affective identity 1 1.00a .94 .33(.09) .12
Affective identity 2 1.00(.05) .92 .46(.09) .16
Evaluative identity 1 1.00a .88 .54(.10) .22
Evaluative identity 2 1.02(.07) .89 .50(.11) .20
a
Brand response 1 1.00 .86 .95(.27) .26
Brand response 2 .96(.10) .85 1.00(.25) .28
Variances for errors in equations
Unstandardized: ψ11 =.68(.12), ψ22 =.68(.14), ψ33 =.69(.13), ψ44 =1.87(.31)
Standardized: ψ11 =.35, ψ22 =.28, ψ33 =.36, ψ44 =.68
Second-order factor loadings
Unstandardized: γ1 =1.12(.09), γ2 =1.31(.10), γ3 =1.11(.09), γ4 =.93(.12)
Standardized: γ1 =.80, γ2 =.85, γ3 =.80, γ4 =.56
Goodness-of-fit
χ2(16)=17.00, p=.39
RMSEA=.013
NNFI=1.00
CFI=1.00
SRMR=.013

Standard errors in parentheses

a
Constrained parameter

one loading may be low and two others high. The indicator
corresponding to the low loading might be dropped and the
model re-run. Of course, such a practice risks capitalizing
on chance, so it would be a good idea to get at the bottom
of why the poor indicator performed as it did. Further data
collection or cross-validation might provide insight in this
regard. A somewhat similar outcome that occurs now and
then is that two indicators, say, load relatively low on a
factor, whereas two others load high. This might mean that
the two indicators loading at a low level are again suspect
as measures of the factor under consideration, or it might
suggest that the factor was specified incorrectly in the sense

Table 10 Covariance matrix of indicators for the technology acceptance model in Fig. 1

Usefulness 1 2.76
Usefulness 2 2.33 2.92
Usefulness 3 2.48 2.53 2.96
Attitude 1 1.11 1.20 1.05 2.31
Attitude 2 1.11 1.06 1.07 1.73 2.19
Subjective norm 1 .90 .75 .96 .96 .98 3.06
Subjective norm 2 .78 .83 .78 1.02 .92 2.59 2.82
Intention 1 .46 .58 .61 1.13 1.08 1.09 1.12 2.40
Intention 2 .50 .54 .49 1.10 1.14 1.18 1.16 2.17 2.46
Usage .53 .67 .59 1.12 1.02 1.49 1.35 1.85 2.02 5.29
Ease of use 1 .83 .75 .95 .71 .79 .77 .87 .38 .33 .37 2.62
Ease of use 2 .76 .89 .97 .86 .81 .69 .79 .44 .39 .51 1.98 2.46

N=204
J. of the Acad. Mark. Sci. (2012) 40:8–34 27

Table 11 Findings for the technology acceptance model (see Table 10 and Fig. 1)

Unstandardized Standardized Unstandardized Standardized

Measurement parameter estimates

Factor loadings Error variances
ly11 1.00a .91 θε1 .46(.07) .17
y
l21 1.02(.05) .90 θε2 .54(.07) .19
ly31 1.08(.05) .95 θε3 .28(.06) .09
ly42 1.00a .87 θε4 .55(.12) .24
ly52 .99(.08) .89 θε5 .47(.12) .21
ly63 1.00a .91 θε6 .50(.15) .16
y
l73 1.01(.07) .96 θε7 .21(.15) .07
ly84 1.00a .93 θε8 .35(.08) .14
ly94 1.05(.05) .96 θε9 .19(.08) .08
ly10;5 1.00a 1.00a θε10 .00a .00a
lx11 1.00a .86 θδ1 .69(.20) .26
x
l21 1.02(.11) .91 θδ1 .43(.20) .18
Structural parameter estimates
Gamma (γ’s) Beta (β’s)
γ11 .43(.08) .40 β21 .36(.07) .41
γ21 .25(.07) .26 β31 .23(.08) .22
γ31 .30(.09) .26 β42 .46(.08) .43
β43 .26(.06) .29
β54 .93(.10) .58
Error in equations (ζ) and variances and covariances (ψii, ψij)
Unstandardized: ψ11 =1.94(.24), ψ22 =1.19(.18), ψ33 =2.15(.28), ψ44 =1.28(.16), ψ55 =3.52(.36), ψ32 =.50(.14)
Standardized: ψ11 =.84, ψ22 =.68, ψ33 =.84, ψ44 =.62, ψ55 =.66, ψ32 =.23
Explained variances: R2usf ¼ :16; R2att ¼ :32; R2SN ¼ :16; R2I ¼ :38; R2u ¼ :34
Goodness-of-fit
χ2(46)=100.35, p=.00
RMSEA=.07
NNFI=.97
CFI=.98
SRMR=.04
a
Fixed parameter; standard errors in parentheses

that it was not actually unidimensional but multidimen-
sional. If multidimensionality is the reason for the poor
model fit and makes sense conceptually, then the model
might be re-run with two factors replacing the original
single one. Examples of this have occurred in the literature
a number of times when researchers proposing a single
dimension for attitudes used semantic differential and
Likert items such that some were largely evaluative in
content and others affective (cf. Bagozzi et al. 2001). Still
another possibility is that all four indicators are sound from
a specification or theoretical point of view, but the two
offending indicators share a bias not common to the two
satisfactory indicators. If a basis exists for hypothesizing such
a bias, then the residuals for the two offending indicators can
be allowed to be correlated, and the model re-run.
Another relatively common occurrence is that some
unspecified paths between latent variables keep the model
from fitting well. For latent variables that were specified as
unconnected in a test of the model, there may be reason to
believe that they are truly related. Alternatively, a variable
has been omitted in the model that affects two or more
unlinked latent endogenous variables. When the above two
cases happen, model fit may be improved significantly by
either adding a path(s) or allowing corresponding error
terms of the latent variables in question to be correlated.
How is one to detect the above problems leading to poor
model fit and/or specification errors? Beyond relying on
intuition, logic, and trial and error, one can examine what
are termed in some programs Lagrange Multipliers or
modification indexes. These indexes suggest whether add-
28
ing a path to a model or allowing error terms to be
correlated would improve a model. Programs indicate for
each fixed or constrained parameter in a model how far a χ2
value will drop if the constraint is relaxed and the model re-
run. The largest index in the output provides this informa-
tion and may be feasible to rely upon when the χ2 value
decreases by 3.84 or more. Again, one should always be
wary of capitalizing on chance, a theoretical or methodo-
logical rationale should be offered (an example of the
latter might be common method bias for certain
indicators pointing to specification of correlated errors),
and cross-validation and/or new data collection should
ideally be performed.
To illustrate some of these ideas, we examined the
modification indexes for the output summarized in Table 11.
The largest modification index was 20.64 for θ62 (i.e., the
correlation between the error term for the second usefulness
indicator and the first indicator of subjective norm). Freeing
up this parameter would thus improve model fit
considerably in terms of the χ2 statistic. In fact, the
model fit is now χ2(45)=78.00, p=.00, RMSEA=.056,
NNFI=.98, CFI=.99, and SRMR=.037, with θ62 =−.22
(s.e.=.05). However, we can think of no plausible rationale
for doing this, and the negative covariance does not make
sense, so we conclude that this is a spurious capitalization on
chance, and therefore we do not modify the model accord-
ingly. Probably, as the overall model fit satisfactory without
estimating these correlated residuals, to relax the original
restriction would constitute an instance of overfitting. Gener-
ally, when one achieves a good fitting model and yet chooses
to relax a restriction, such a practice might be suspect and
capitalize on chance.
One last point: for causal models of the sort shown in
Fig. 1, which is intended to represent a researcher’s
hypotheses under TAM, it is incumbent on the researcher
to demonstrate and test for full mediation (e.g., whether
intention channels all the effects of attitude on usage or
whether a direct path also exists from attitude to usage).
We did this for the model and data at hand and
confirmed that direct paths not hypothesized were
indeed nonsignificant. For an example of how this is
done and how findings are presented in this regard, see
Bergami and Bagozzi (2000, pp. 570–572) and Bagozzi
and Dholakia (2006, pp. 55–56).
Miscellaneous topics
Goodness-of-fit
Many indexes of goodness-of-fit exist to appraise an entire
model, but the χ2 statistic is in some ways the most
fundamental. The χ2 statistic can be used to test the null
J. of the Acad. Mark. Sci. (2012) 40:8–34
hypothesis that the estimated or implied variance-covariance
matrix of indicators reproduces the observed or sample
variance-covariance matrix. For SEMs, a good fit is obtained
when the χ2 statistic is nonsignificant, which by convention
is taken to happen for p-values≥.05. As Barrett (2007) notes,
the χ2 test is “the most direct and obvious test of model fit”
(p. 823) and indeed “is the ONLY statistical test for SEM
models at the moment” (p. 818).
Because the χ2 is sensitive to sample size, it becomes
difficult to achieve satisfactory models fits as the sample
size increases. As a result, researchers have proposed a
number of indexes of practical fit. Before we describe
these, it might be mentioned that some researchers are
rather dismissive of the use of such indexes. Barrett (2007),
for example, is quite critical of the use of practical indexes
and feels that their uses in “social science, business,
marketing, and management journals are littered with … a
plethora of forgettable, non-replicable, and largely ‘of no
practical measureable consequence’ models” (p. 823). It is
beyond the scope of this article to explore Barrett’s
thoughtful comments. For a nice treatment of many of the
issues of concern, see Marsh et al. (2004). Our presentation
here will be limited to “best practices” as currently followed
in the literature for evaluating model fit.
At this time, the generally recognized and recommended
practical fit indexes are the RMSEA (root mean square
error of approximation) which gives the average amount of
misfit for a model per degree of freedom, the NNFI
(nonnormed fit index; also termed the TLI, Tucker and
Lewis index) which rewards for model parsimony/penalizes
for model complexity, the CFI (comparative fit index)
which is an indicator of relative noncentrality between a
hypothesized model and the null model of modified
independence (i.e., a model where only error variances are
estimated), and the SRMR (standardized root mean square
residual) which is the square root of the average squared
residuals. Hu and Bentler (1998, 1999) recommend the
following standards for assessing models: RMSEA≤0.06,
NNFI≥0.95, CFI≥0.95, and SRMR≤.08. The rationale for
relying on these four indexes seems to be the absence of a
single standard for evaluating model fit (except perhaps for
the χ2 statistic), where one desires (1) an index confined to
a precise range such as 0.00 to 1.00 inclusive (the NNFI
can exceed 1.00 for very good model fits, which happens
rarely and then tends to go above 1.00 by small amounts; the
CFI is arbitrarily restricted to a maximum of 1.00, but without
this restriction also could exceed 1.00 by a small amount), (2)
distinct cut-off values (but some disagreement exists on what
these should be; see below), (3) provision for penalizing
model complexity/rewarding model parsimony (the CFI tends
to fit more complex models better than parsimonious ones; the
NNFI and RMSEA tend to reward for parsimony/penalize for
complexity, but can disagree between themselves at times),
J. of the Acad. Mark. Sci. (2012) 40:8–34
and (4) indexes independent of sample size (the CFI and
RMSEA are relatively independent of sample size; the SRMR
and NNFI are not). Although no single index meets all the
above criteria, the set of four presented above collectively
provides satisfactory criteria for overall model evaluation. Hu
and Bentler (1999) seem to suggest that it may be sufficient
to rely on two of the four indexes (RMSEA and CFI). But of
course, a more stringent standard would be to satisfy all four
indexes (e.g., Fan and Sivo 2005).
A common outcome in everyday research is that the χ2
test is significant, and one or more of the four indexes is
unacceptable under the Hu and Bentler recommendations
presented above. What should one do in such circumstances?
As mentioned above, the χ2 test can be very sensitive to
sample size (see discussion below on sample size). If one
suspects that a “large” sample size is the cause of a
significant χ2 test, it may be satisfactory to scrutinize the
four practical fit indexes. But some ambiguity exists as to
what acceptable cut-offs should be. The Hu and Bentler
(1999) recommendations are a good starting point, but
we offer the following caveats. Because one or a few
“high” residuals might be obscured under the average
provided by the SRMR, we recommend that a more
conservative cut-off of ≤.07 be applied. On the other
hand, the criteria suggested for the RMSEA, NNFI, and
CFI may be too stringent. It is difficult to be definitive
in this regard, but, given SRMR≤.07, a model might be
satisfactory with RMSEA≤.07, NNFI≥.92, and CFI≥.93
(cf. Marsh et al. 2004). But more research is needed to
establish this. Note also that one might discount the NNFI
and RMSEA when models are by design or necessity
complex, such as happens with construct validity inves-
tigations with method factors. Last, when data are not
normally distributed, and the χ2 statistic and standard
errors of parameter estimates are detrimentally affected, it
may be fruitful to apply the Satorra-Bentler scaled χ2
(Satorra and Bentler 1994), which is now provided
routinely in many SEM programs.
Two other goodness-of-fit indexes we wish to
mention are analogous to explained variance in regres-
sion models. The GFI (goodness-of-fit index) and AGFI
(adjusted goodness-of-fit index) range from 0.00 to 1.00
inclusive. No commonly accepted cut-off criteria have been
proposed for the GFI and AGFI, both indexes are dependent
on sample size, and simulations show that both do not perform
as well as the RMSEA, NNFI, CFI, and SRMR. Hence, the
received view at this time is to rely on the χ2 statistic and the
RMSEA, NNFI, CFI, and SRMR.
Sample size issues
Some disagreement exists with respect to recommended
sample sizes for SEMs. One researcher goes so far as to assert
29
that “SEM analyses based upon samples less than 200 should
simply be rejected outright for publication unless the
population from which a sample is hypothesized to be drawn
is itself small or restricted in size” (Barrett 2007, p. 820).
Another researcher believes that we should “shoot for a
sample size of at least 50” and that such rules of thumb that
sample sizes should be greater than 200 are “surely
simplistic” (Iacobucci 2010, p. 92). Pressed, we would have
to say that rarely (e.g., in a factor analysis of a small number
of items with “well-behaved data”) would a sample size
below 100 or so be meaningful, and that one should
endeavor to achieve a sample size above 100, preferably
above 200. However, exclusive focus on sample size may
miss the point. Other issues are often more important under
certain circumstances. The critical issue is the distributional
properties of measures in SEMs, because the frequently used
maximum likelihood (ML) estimation procedure requires
multivariate normality. Kurtosis is especially a problem in
this regard, but the ML estimation technique has been shown
to be robust to departures from normality. So even with a
relatively small sample size, the ML procedure may be
satisfactory, if the distributional properties of measures are
satisfactory or are not too far out of range.
A frequently promoted rule of thumb concerns the
minimum recommended ratio of sample size to number of
parameters to be estimated in an SEM. Bentler and Chou
(1987, p. 91) state that the ratio “may be able to go as low
as 5:1 under normal and elliptical theory, especially when
there are many indicators of latent variables and the
associated factor loadings are large,” but they also believe
that “a ratio of at least 10:1 may be more appropriate for
arbitrary distributions.” This conservative advice is well
taken, but we have found in practice that satisfactory
models have been obtained with ratios near 3:1, even close
to 2:1 on occasion. Again, the distributional properties of
measures are important, not sample size or ratios of sample
size to free parameters, per se.
A final implication of sample size is the following.
Because the χ2-test is proportional to sample size, there is a
danger that too small a sample size may lead to a decision
to accept an invalid model; similarly, there is a risk that a
large sample size may prompt one to reject a model that, in
fact, is a reasonable one. But there is nothing mysterious
about these outcomes. Larger sample sizes also make it
more likely that smaller parameter estimates will become
significant and might lead one to accept a path that is
trivially relevant.
Multiple group analyses
A useful and powerful aspect of SEMs is the test of
hypotheses across samples. For example, one might desire
to test whether men and women differ in their attitudes, or
30
whether job satisfaction in one organization is higher than
job satisfaction in another organization. Another reason to
compare samples is to test whether the effect of one latent
variable on another depends on group membership or some
measureable differences between people, institutions,
countries, etc. This is an example of an interaction effect,
which will be discussed in the next subsection of the article.
A common objective might be to ascertain the following
for sets of indicators of multiple factors:
1. Does the same factor pattern or structure hold for two
or more groups?
2. Given similar structures, are the factor loadings the
same or invariant across the groups?
3. Are the measures of a factor(s) equally reliable across
groups?
4. Do the factors covary to the same extent across groups?
5. Are the means of factors different across groups?
One could also test whether error variances are the same
across groups, but this often does not hold or is not of much
interest.
To test whether factor patterns are identical, one specifies
the same model in each group under scrutiny, and with
input command files stacked after each other, determines
whether the model fits well for all groups.
To test whether all factor loadings are the same across
groups, one constrains factor loadings to be equal across
groups. The resulting χ2 test is compared to the χ2 for
invariant factor patterns. A nonsignificant χ2 difference (# 2d )
with degrees of freedom equal to the difference between
degrees of freedom from the two models suggests that all
factor loadings are invariant. Equality of factor loadings for
multiple groups supports the hypothesis that the correspon-
dence between factors and their indicators is the same for
the groups. Sometimes the test of invariance of factor
loadings is rejected, and one or more factor loadings differ
across groups. When this happens, it is necessary to test
factor loading invariance for one loading at a time, until the
loading(s) leading to the rejection of the equality of all
loadings is (are) found.
Equal reliability for a set of indicators of a factor can
also be ascertained. This is demonstrated when both the
factor loadings and the variance of the factor are shown to
be invariant across groups.
To test whether a covariance between two factors is
the same across groups, one must first show that the
factor pattern and at least one factor loading per factor
(ideally, all factor loadings) are invariant. Given invariance
in this sense, one then constrains the covariance in question to
be equal across groups and compares the resulting χ2. A
significant # 2d test with one degree of freedom provides
evidence that the covariance is statistically different in
magnitude across the groups.
J. of the Acad. Mark. Sci. (2012) 40:8–34
To test whether a path from one latent variable to another
differs across groups, it is necessary first to show that at
least one factor loading per factor (preferably all) is
invariant for the factors under study. Why? If the factor
loadings were found to differ, then any difference discov-
ered for the path coefficient could not be interpreted
unambiguously as a true difference. In such a case, the
difference could be due to differential reliability of
measures of the factors, a true difference in the path
coefficient, or both differential reliability and a true
difference. So we need to establish factor loading invari-
ance before testing for and interpreting differences in path
coefficients.
Finally, it is possible to test for the means of factors
across groups (sometimes termed structured means). To test
for the equality of factor means, given that the equalities of
factor loadings and intercepts are first established, one can
examine whether the factor means of one group differ from
another by fixing the means of factors in one group to zero
as a baseline and estimating the factor means in the other
groups. Estimates of mean differences and their standard
errors are used for this purpose.
In sum, multiple group analyses open up a number of
interesting hypotheses for study. They can be used to test
for equality of factor patterns, loadings, factor variances,
factor covariances, and error variances across groups. They
are useful to verify whether reliabilities of measures of a
factor are similar for different groups. They can be used to
test for the equality of path coefficients across groups. They
are helpful in testing whether the means of factors differ
across groups.
Moderating variables
Most of the models discussed in the SEM literature deal
with linear models. But forms of interactions can be
accommodated in SEMs, albeit with some difficulties and
strong assumptions. One model allowing for nonlinearities
in the form of construct (trait) by method interactions, for
tests of construct validity, is termed the direct product model
(e.g., Bechger and Maris 2004; Wothke and Browne 1990).
For examples, see Bagozzi and Yi (1990, 1992) and Bagozzi
et al. (1999).
Multiple group analyses can be used to investigate
interactions between a latent variable and another variable,
as noted earlier. A comparison of regression parameters
across men and women might support an interaction
between gender and the independent variable, if the path
coefficient is significantly different across gender. The
multiple group approach to tests of moderation has the
disadvantage of not taking into account all information
available in the data. If no significant interaction is found,
then we cannot rule out the possibility that this was due to a
J. of the Acad. Mark. Sci. (2012) 40:8–34
failure to take into account enough information. On the
other hand, when significant differences are found for
regression parameters across groups, one might conclude
that there is some merit for claiming an interaction effect.
It is possible to more formally test for interaction effects
with SEMs. For technical discussions, see Jöreskog and
Yang (1996), Marsh et al. (2004), and Mooyaart and Bentler
(2010). The only substantive example that we are aware of
in the literature demonstrating an interaction effect between
two latent variables is in Bagozzi et al. (2004). Jöreskog
and Yang (1996) caution that a strong theory is needed for
specifying an interaction, very large samples are needed to
test hypotheses by use of the recommended weighted least
squares procedures (e.g., based on the augmented moment
matrix), and quite complex constraints must be posed when
specifying models. If one does not have a sufficiently large
sample, then the use of maximum likelihood methods will
not give correct χ2-tests and standard errors.
Finally, SEMs can be used in experimental designs to
test for interactions, analogous to ANOVA and MANOVA.
Somewhat larger cell sizes are needed to do this than with
traditional designs, but when feasible such a practice offers
the advantages of taking into account measurement error,
incorporating manipulation checks formally into the anal-
yses if desired, and testing for mediation or step-down
effects. Some discussions for the use of SEMs in
experimental designs can be found in Bagozzi (1977),
Kühnel (1988), Bagozzi and Yi (1989), Bagozzi et al.
(1991b), Russell et al. (1998), and Curran and Hussong
(2002).
Non-recursive and longitudinal models
A recursive model is one where no feedback or reciprocal
causation occurs between latent variables. All the models
we have considered up to this point are recursive models.
Reciprocal causation (simultaneity) is modeled occa-
sionally in the literature. Figure 8a presents the simplest
identified model for reciprocal causation; one can add more
exogenous or endogenous variables to this model and still
identify the paths between η1 and η2. A problem with
reciprocal causation models is that it is difficult to justify
mutual causality between η1 and η2 when these are
measured at the same point in time. At least to the extent
that temporal priority of cause to effect is a defining quality
of causation, such a model may not be defensible, although
it can be estimated and tested with SEM procedures.
Causality is regarded fundamentally to be a recursive
phenomenon under most conceptualizations in philosophy.
Some researchers nevertheless defend reciprocal causality
under the assumption that the processes implied are in some
sense in equilibrium. However, the assumption of equilib-
rium is difficult to specify in practice.
31
It may be that two phenomena cause each other but do
so over time. Figure 8b shows a cross-lagged panel model
where one event or state of affairs, ξ1 and η1, measured at
two points in time, is thought to cause or be caused by
another event or state of affairs, ξ2 and η2, also measured at
two points in time. That is, the cross-lagged panel model
can be used to ascertain whether ξ1 causes η2, ξ2 causes η1,
both ξ1 causes η2 and ξ2 causes η1, or no causality is
supported. The paths from ξ1 to η1 and from ξ2 to η2 are
included to capture the stability of the two phenomena over
times 1 and 2. The cross-lagged panel model can be
unstable and produce counter-intuitive parameter estimates,
analogous to that found when multicollinearity is a
problem, and especially so when little change in phenom-
ena happens over the period of time under study. Be that as
it may, the cross-lagged panel model usually provides more
valid bases for supporting causality than that afforded by
cross-sectional studies.
More generally, the strategic use of time in longitudinal
studies can reduce some threats to validity inherent in
cross-sectional studies. The more points in time one
specifies separating variables proposed to be causally
linked, the greater the confidence that regression parameters
will support causation. Also, use of multiple methods
and modeling of method bias, in conjunction with
longitudinal designs, can increase the evidence for
causality. Figure 8c presents a simple longitudinal model
for testing the theory of planned behavior, where measure-
ments are taken at three points in time. This model could
be improved further by obtaining objective measures of
behavior, as well as by employing multiple methods to
obtain data.
Two topics related to longitudinal models are latent
growth curve models and multilevel models. These topics
are beyond the scope of this article. The reader is referred to
Duncan et al. (2006) and Heck and Thomas (2009).
Data screening issues
The last topic we consider deals with practices that actually
should be performed before estimating parameters on data
and testing hypotheses. A basic step is to make sure no
coding or recording errors have been made. Another check
is inspection for outliers. Bollen (1989, pp. 24–32) provides
procedures for detecting outliers, but of course such a
procedure should be used with caution, and exclusion of
any outliers should be guided by sound scientific standards.
See also Yuan and Bentler (1998, 2007).
An important issue, as indicated earlier, is the distribu-
tion of measures and whether the assumption of normality
is warranted. Many SEM programs provide convenient
ways for examining univariate and multivariate normality.
Kurtosis may especially be a concern; kurtosis for normal-
32
Fig. 8 Nonrecursive and longi-
tudinal models
A. Reciprocal causation (simultaneity)
η η1
B. Cross-lagged panel model
Time 1
ξ1
ξ2
C. Longitudinal model
Time 1
Attitude
Subjective
norm
Perceived
behavioral
control
ity is three. Skewness for normality should be zero. A
number of transformations can be used to improve the
distribution of measures—measures based on proportions
should be transformed by the arcsine transformation, the
log or square root transformation can be used to correct
positively skewed data, an inverse transformation can be
employed for negatively skewed data.
Missing data also pose problems for model estimation
and hypothesis testing. Savalei and Bentler (2006, p. 355)
suggest that missing data below about 5% might be
ignored by use of listwise deletion when computing
correlation or covariance matrixes. For missing data to a
greater extent, many remedies have been suggested. But
such old standbys as mean substitution, regression
estimation, pairwise computations, and case-wise dele-
tion can lead to biased χ2 statistics, parameter estimates,
and standard errors (Bentler 2010, p. 218). Two improved
procedures for handling missing data are case-wise maximum
likelihood (Jamshidian and Bentler 1999) and an approach
based on missing at random (Savalei and Bentler 2009).
However, any procedure that is unable to take into account
unknown systematic reasons for missing data, whether
J. of the Acad. Mark. Sci. (2012) 40:8–34
η2
Time 2
η1 δ1
η2 δ2
Time 2 Time 3
Intention Behavior
missing partially due to relationships with other variables
in the data or due to method or other bias, should be used
with caution. Special care should be taken in questionnaire
design, data collection, sampling, motivation of respondents,
and other factors. Sometimes one has no other choice but to
eliminate suspect missing data.
Conclusion
We have attempted to provide a thorough introduction to
SEMs for the user of such techniques in substantive
research and the general reader of substantive research
employing SEMs. There are many topics that we could
not deal with in depth and were forced to mention just
briefly. In addition, there are many complex statistical
issues with SEMs that are beyond the scope of this
article. But we hope that the introduction herein will
provide the reader with a sound foundation and motivation for
further study, and in its course empower readers to make
important discoveries in, and contributions to, whatever field
within which they work.
J. of the Acad. Mark. Sci. (2012) 40:8–34
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