FACTOR

ANALYSIS
B Y: D R . D A N N Y M . T E
What is Factor Analysis?
• Factor Analysis (FA) is also known as Exploratory Factor Analysis (EFA). It is
called EFA to differentiate it from Confirmatory Factor Analysis (CFA), a
technique based on co-variance based structural equation modeling (CB-SEM).
• FA or EFA is a major technique in multivariate statistics. FA and CFA are based
on interdependence techniques. In interdependence technique, the variables
are not referred to as independent, dependent, or moderating. The variables
are not labelled and their relationships are manifested with a line with two
headed arrows.
• FA is processed by forming the variables into a structure called factors.
These variables come from the item-indicators or item-questions that
describe the factor, which is initially called pseudo-factor.
• The pseudo factor is just a temporary label for the variables (item-
questions) to be grouped in the survey questionnaire. Once the structure
is formed through FA, the factors will be renamed based on the
attributes of the variables that comprise each factor.
• The variable/s with higher factor loading will influence in labelling the
factor. Thus, the final factor labelling is subjective and dependent on the
researcher’s preference for the appropriate attribute-label.
• Based on variance, FA can be further categorized into Principal
Component Analysis and Common Factor Analysis. Most
researchers would prefer Principal Component Analysis.
• Regarding the sample size in FA, a sample size of 100
(observations) or larger is preferable (although FA can factor
analyze at least a sample size of 50). It should be 200 or higher, if
you will split the samples for validation purposes.
• As a general rule, the minimum is to have at least five times as
many observations as the number of variables to be analyzed, and
the more acceptable sample size would have a 10:1 ratio (Hair et.
al, 2014).
Interpretation of FA based on the ff:
• Measure of Sampling Adequacy (MSA) through Kaiser-Myer
Olkin (KMO) Test and Barlett’s Test of Spherecity.
• KMO measures the sampling adequacy. It should be greater than .50 for a
satisfactory factor analysis to proceed (Burns, B. & Burns, R., 2008). The
measure can be interpreted with the following guidelines: .90 or above,
marvelous; .80 or above, meritorious; .70 or above, middling; .60 or above,
mediocre; .50 or above miserable; and below .50, unacceptable (Hair et al.,
2014).
• Total Variance Explained.
• The cumulative variance explained should be 60% or higher to make it valid
and reliable. The cumulative variances for the unrotated (extraction sums of
squared loadings) and the rotated (rotation sums of squared loadings) have
the same final value. However, for this study, the latter is the one being
applied for easy interpretation.
• Communalities of Variables.
• Communality below .50 is interpreted as failing to explain the other variables.
• A communality of below .50 is a candidate for deletion. However, if it falls below .50,
but not below .40, it is the researcher’s discretion not to delete it if it has a significant
factor loading and there is a theoretical support regarding its importance in the study. If
it is below .40, delete it, and then run again the factor analysis
• Scree Plot
• The scree plot is a graphical presentation of the factors as they are shown based on its
eigenvalue. Ideally for a factor to be considered significant, it should have an
eigenvalue of greater than 1 (Kaiser criterion) .
• Below eigenvalue of 1, the factors are not considered anymore in the analysis. Normally,
the scree plot would show a steep first factor and the remaining factors would drop
drastically down to eigenvalue 1 (called the elbow of scree plot as it looks like an
elbow) and gradually goes further down (below eigenvalue 1)to the last factor.
• The scree plot normally depicts the distribution of un-rotated factors. When the factors
are rotated, the high eigenvalue of the first factor will be shared to the other factors,
thus tapering its height.
• Un-rotated or Rotated Factor Loadings
• The researcher can opt for unrotated factor loading when
interpreting it. However, based on the advise of statisticians and
researchers, it is better to rotate it as it would make the interpretation
easier. Generally, the favorite rotation technique is orthogonal. If the
researcher is using SPSS, the favorite orthogonal rotation is Varimax.
• Factor loadings should be interpreted in terms of its significance,
which is also linked to the sample size. See the guidelines below for
the sample size and the significant factor loading.
Guidelines for Identifying Significant Factor
Loading based on Sample Size
 Steps in Processing Factor Analysis
• In the SPSS environment, click Analyze > Dimension Reduction > Factor (and shows
Factor analysis dialog box.
• Enter all variables (scales) into Variables box .
• Then press Descriptives button.
• Tick statistics (initial solution) and correlation matrix
(coefficients, significance levels, determinant, KMO and
Barlett’s test of sphericity). Or you can tick them if you want to
see all the results. Then press Continue button.
• Press Extraction button and tick Un-rotated factor solution
(however, you can omit this if you just want the rotated factor
solution) and Scree plot.
• Press Continue and then Rotation button. Tick Varimax (None is the
default). Tick Rotated solution and Loading plot. Note Maximum
iterations for Convergence is 25 (default). If you cannot find
significant convergence, then increase it to, say 50 or 75.
• Press Continue and then press Options button. The default is Exclude cases
listwise (meaning it will remove the data with missing values). If you want the
data with missing values to be replaced with mean values, tick Replace with
mean. Tick Sorted by size (so that the variables will be arranged from greatest
to least value). Tick Suppress small coefficients and enter the value of
significant factor loading based on sample size (in this case .40 as the sample
size is 200. When done, press Continue. When everything is included, you can
press Ok button to start FA processing.
 Communalities
FA Output
Table 7.2. KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .832

Bartlett's Test of Sphericity Approx. Chi-Square 4157.947
df 666
Sig. .000
 Table 7.5. Rotated Component Matrixa

Component

1 2 3 4 5 6 7 8 9
Med GS Price .853
High GS Price .842
Med DS Price .826
Low DS Price .797
Low GS Price .787
HIgh DS Price .776
Entertain Live .774
Entertain Facilities .756
Promo VM .720 .413
Promo Ads .702
Promo Billboard .700
Entertain AV .694
Entertain Social .694
Promo Sale .606
Atmos Lighting .815
Atmos CR Location .754
Atmos Color .737
Atmos Escalator .709
Atmos Benches .631
Atmos Music .543
Atmos Aircon .480
Product Variety DS .818
Product Assort GS .795
Product Assort DS .781
Product Variety GS .772
Service Guards .829
Service Clerks .784
Service CAC .766
Atmos GS Crowded .817
Atmos DS Crowded .759
Access Publictrans .795
Access Location .625
Sample Interpretation of Factor Analysis
• The researcher applied the KMO’s measure of sampling adequacy (MSA)
and the Bartlett test of sphericity to determine whether the data is
appropriate for exploratory factor analysis. The MSA result (.832)
showed it is meritorious. On the other hand, the Barlett’s test of
sphericity at .05 significance level showed that the variables are all
highly significant at .000 significance level. Thus, all the variables are fit
for exploratory factor analysis.
• For determining the number of factors to be extracted, the researcher
opted for latent root (eigenvalue) criterion of ≥ 1 and cumulative
percentage of variance, which should account for 60% of the total
variance to be satisfactory. There are 9 factors extracted. The cumulative
percentage of variance is 69.855, which is higher than .60.
• As far as the communalities are concerned, all variables, except Atmos Music,
have values greater than .50, thus, are capable of explaining the variances.
Atmos Music (.447) is considered, although slightly less than .50, as its factor
loading is .543 (higher than .40, factor loading significant for 200 samples, see
Table 7.1). Based on existing literature review, music is an important mall
atmospherics.
• In interpreting the significance of factor loadings, the researcher used the
guidelines for identifying significant factor loadings based on sample size.
Since this study sampled 200 respondents, a factor loading of .40 based on a
.05 significance level was considered significant.
• The Varimax method of rotation (a popular orthogonal method) was employed
for easier interpretation.
• The nine (9) factors derived from factor analysis using principal component
analysis showed that all the thirty-seven variables have significantly high factor
loadings. The variables that have factor loading of. 50 or higher are
interpreted as practically significant.
• For Factor 1 (labelled as Mall Reasonable Prices), Med GS Price (.853), High
GS Price (.842), Med DS Price (.826), Low DS Price (.797), Low GS Price (.787),
and High DS Price (.776), respectively, are interpreted as practically significant;
• For Factor 2 (labelled as Mall Promotion and Entertainment), Entertain Live
(.774), Entertain Facilities (.756), Promo VM (.720), Promo Ads (.702), Promo
Billboard (.700), Entertain Social (.694),and Promo Sale (.606) are interpreted as
practically significant;
• For Factor 3 (labelled as Mall Atmospherics and Comfort), Atmos Lighting
(.815), Atmos CR Location (.754), Atmos Color (.737), Atmos Escalator (.709),
Atmos Benches (.631), Atmos Music (.543), and Atmos Aircon (.480),
respectively, are interpreted as practically significant (except for Atmos Aircon,
which is below .50; the basis for interpreting it as practically significant is if the
factor loading is .50 or higher);
• For Factor 4 (labelled as Mall Product Variety), Product Variety DS (.818),
Product Assort GS (.795), Product Assort DS (.781), and Product Variety GS
(.772) are interpreted as practically significant;
• For Factor 5 (labelled as Mall Service), Service Guards (.829), Service Clerks
(.784), and Service CAC (.766), respectively, are interpreted as practically
significant;
• For Factor 6 (labelled as Mall Density), Atmos GS Crowded (.817) and Atmos
DS Crowded (.759) are interpreted as practically significant;
• For Factor 7 (labelled as Mall Accessibility to Public Vehicles), Access
Publictrans (.796) and Access Location (.625) are interpreted as practically
significant;
• For Factor 8 (labelled as Mall Accessibility to Private Vehicles), Access Near
Park (.728), Access Private Park (.571), and Atmos CR Clean (.416), respectively,
are interpreted as practically significant (except for Atmos CR Clean, which is
below .50;) and ;
• For Factor 9 (labelled as Mall Smell), Atmos Odor (.683) and Atmos Wetmarket
(.617) are interpreted as practically significant.
• Thus, the 9 factors derived from exploratory factor analysis, that accounted for
69.9% of the total cumulative variance, showed that all 37 variables are highly
significant and important.
End of Presentation. Thank you for listening