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PLG 701
Lecture 3
WHAT IS ?
Factor analysis examines the interrelationships among a large
number of variables and then attempts to explain them in
terms of their common underlying dimensions.
These common underlying dimensions are referred to as
factors.
Factor analysis is a summarization and data reduction
technique that does not have independent and dependent
variables, but an interdependence technique in which all
variables are considered simultaneously.
Confirmatory Exploratory
Modeling
Q-type Factor
R-Type Factor
Analysis or
Analysis
Cluster Analysis
History
The method of factor analysis originated with
– C. Spearman
and
– G.H. Thomson
– L.L. Thurstone
– J. B. Carroll
– K. Joreskog
have contributed to further developments
Designing a Factor Analysis
n N
N Q factor analysis
N = number of persons
Ordinary factor analysis n = number of variates
Steps in a Factor Analysis
• First, the correlation matrix for all variables is computed.
Variables that do not appear to be related to other variables can
be identified. The appropriateness of the factor model can also
be evaluated.
• Second step, factor extraction - the number of factors necessary
to represent the data and the method of calculating them –
must be determined.
• The third step, rotation, focuses on transforming the factors to
make them more interpretable.
• At the fourth step, scores for each factor can be computed for
each case. These scores can then be used in a variety of other
analyses.
General Steps to FA (Hair et al., 2006)
• A Priori Criterion.
• Latent Root Criterion.
• Percentage of Variance.
• Scree Test Criterion.
Number of Factors?
• A Priori Criterion.
• Latent Root Criterion.
• Percentage of Variance.
• Scree Test Criterion.
Eigenvalue Plot for Scree Test Criterion
Number of Factor Extracted
• Eigenvalue > 1.0
• Scree plot
Rotation of Factors
V2
+.50
Unrotated
Factor I
-1.0 -.50 0 +.50 +1.0
V3
V4
-.50
Rotated
V5
Factor I
-1.0
Oblique Factor Rotation
Unrotated
Factor II Orthogonal
+1.0 Rotation: Factor II
V1 Oblique Rotation:
Factor II
+.50 V2
Unrotated
Factor I
-1.0 -.50 0 +.50 +1.0
V3
V4 Oblique
-.50 Rotation:
V5 Factor I
Orthogonal
Rotation: Factor I
-1.0
Rules of Thumb 3–4
.30 350
.35 250
.40 200
.45 150
.50 120
.55 100
.60 85
.65 70
.70 60
.75 50
*
Significance
Significance is based on a .05 significance level (a), a power level of 80 percent, and
standard errors assumed to be twice those of conventional correlation coefficients.
Rules of Thumb 3–5
• To be considered significant:
o A smaller loading is needed given either a larger sample size, or
a larger number of variables being analyzed.
o A larger loading is needed given a factor solution with a larger
number of factors, especially in evaluating the loadings on later
factors.
Goodness of Measures 43
HATCO Data Low value indicating that
there might not be sufficient
KMO and Bartlett's Test
number of significant
Kaiser-Meyer-Olkin Measure of Sampling
Adequacy.
correlations to conduct
.446
Factor analysis
Bartlett's Test of Approx. Chi-Square 567.541
Sphericity df 21 Typically any correlation less
Sig. .000 than 0.3 is insignificant
Correlation Matrix
The above indicates that there might be some variables that should not
be included in the Factor analysis
HATCO Data
Anti-image Matrices
MSA < 0.5 indicates that these variables that should not be included in the
Factor analysis. Delete one at a time – pick the lowest value, and repeat the
analysis excluding X5
Before deleting
Total Variance Explained
Initial Eigenvalues Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings
% of % of % of
Component Total Variance Cumulative % Total Variance Cumulative % Total Variance Cumulative %
1 2.526 36.082 36.082 2.526 36.082 36.082 2.379 33.984 33.984
2 2.120 30.291 66.374 2.120 30.291 66.374 1.827 26.098 60.082
3 1.181 16.873 83.246 1.181 16.873 83.246 1.622 23.165 83.246
4 .541 7.731 90.977
5 .418 5.972 96.949
6 .204 2.920 99.869
7 .009 .131 100.000
Extraction Method: Principal Component Analysis.
Communality • Amount of shared, or
common variance, among
the variables
• General guidelines should
be above 0.5
Communalities
Initial Extraction
x1 Delivery Speed 1.000 .884
x2 Price Level 1.000 .895
x3 Price Flexibility 1.000 .649
x4 Manufacturer Image 1.000 .885
x5 Service 1.000 .995
x6 Salesforce Image 1.000 .901
x7 Product Quality 1.000 .618
Extraction Method: Principal Component Analysis.
Component Matrix
Unrotated Rotated
Component Component
1 2 3 1 2 3
x1 Delivery Speed -.528 .752 .202 x1 Delivery Speed -.752 .071 .560
x2 Price Level x2 Price Level .754 .108 .561
.792 .093 .508
x3 Price Flexibility -.806 .006 .010
x3 Price Flexibility -.692 .374 -.173
x4 Manufacturer Image .117 .921 .153
x4 Manufacturer Image .564 .602 -.452
x5 Service -.062 .176 .980
x5 Service .186 .779 .595
x6 Salesforce Image .034 .945 .077
x6 Salesforce Image .492 .604 -.542 x7 Product Quality .760 .193 -.064
x7 Product Quality .739 -.270 -.005
Extraction Method: Principal Component Analysis.
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
a. 3 components extracted. a. Rotation converged in 5 iterations.
HATCO Data
KMO and Bartlett's Test
Anti-image Matrices
Communalities
Initial Extraction
Delivery Speed 1.000 .658
Price Level 1.000 .580
Price Flexibility 1.000 .646
Manufacturer Image 1.000 .882
Salesforce Image 1.000 .872
Product Quality 1.000 .616
Extraction Method: Principal Component Analysis.
HATCO Data
Total Variance Explained
• These represents the percentage of variance in X1, X2, X3, X4, X6,
X7 captured by the two factors. Cumulatively the two factors
captured 71% of the variance, which is quite high
• When reporting factor results you need to also include the
percentage of variance explained beneath each factor
• The next issue: Which items to which factor? This assignment must
be done uniquely; I.e. one item can be loaded onto only one and
only one factor.
HATCO Data
Component Matrixa
• The purpose is to assign
Component uniquely each item to
1 2 only one factor.
Delivery Speed -.627 .514
Price Level .759 -6.79E-02 • We do this by looking at
Price Flexibility -.730 .337 the factor loadings
Manufacturer Image .494 .798
• They represent the
Salesforce Image .425 .832
Product Quality .767 -.168
correlation between the
item and the factor.
Extraction Method: Principal Component Analysis.
a. 2 components extracted. • Thus when an item has
• The above pattern of cross-loadings especially significant ( > 0.3)
loadings on more than
for X1, X3, X4, X6 indicates that these 4 items
one factor, then we see
cannot be uniquely assigned to either one of
the problem of cross-
these two factors.
loadings.
• To get a clearer picture, we do a rotation
HATCO Data
Rotated Component Matrixa • After varimax rotation,
Component we can see a clearer
1 2 pattern of assignment
Delivery Speed -.787 .194
Price Level .714 .266
with minimal problem of
Price Flexibility -.804 -1.06E-02 cross loadings
Manufacturer Image .102 .933
Salesforce Image 2.537E-02 .934 • Factor 1 consists of X1,
Product Quality .764 .179 X2, X3, and X7 which
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
refers to physical quality
a. Rotation converged in 3 iterations. attributes. Thus it can be
labeled as Physical
• The next stage in the analysis Quality Perceptions
is to test reliability of the 4 • Factor 2 refers to X4 and
items for physical quality X6 and both are related
perceptions are reliable. to Image. Thus we can
• Similarly for the 2 items of label it as Image
image
HATCO Data
Rotated Component Matrixa
Component
1 2
Price Flexibility -.804 -1.06E-02
Delivery Speed -.787 .194 Sorted by size of loadings
Product Quality .764 .179 within each factor
Price Level .714 .266
Salesforce Image 2.537E-02 .934 Obtained by using the
Manufacturer Image .102 .933 OPTIONS
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 3 iterations.
Component
1 2
Delivery Speed -.803 .248
Price Level .704 .219
Price Flexibility -.808 .043
Manufacturer Image .052 .931
Salesforce Image -.026 .937
Product Quality .759 .129
Extraction Method: Principal Component Analysis.
Rotation Method: Oblimin with Kaiser Normalization.
a. Rotation converged in 4 iterations.
Validation – Split Sample
Rotated Component Matrix a
Component
1 2
Delivery Speed .807 .087
Price Level -.700 .220
Price Flexibility .801 .034
Manufacturer Image -.122 .929
Salesforce Image -.040 .938
Product Quality -.707 .305
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 3 iterations.
Component
1 2
Delivery Speed -.766 .334
Price Level .740 .300
Price Flexibility -.822 -.090
Manufacturer Image .081 .935
Salesforce Image .017 .934
Product Quality .809 .044
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 3 iterations.
Sample Table 1
Component
Communality
Items 1 2
x1 Delivery Speed -0.787 0.194 0.658
x2 Price Level 0.714 0.266 0.580
x3 Price Flexibility -0.804 -0.011 0.646
x4 Manufacturer Image 0.102 0.933 0.882
x6 Sales force Image 0.025 0.934 0.872
x7 Product Quality 0.764 0.179 0.616
Eigenvalue 2.370 1.883
Variance (70.883) 39.497 31.386
Explanation
• A principal component factor analysis with varimax
rotation was done to validate whether the respondents
perceived the three constructs to be distinct. The
results showed a two factor solution with eigenvalues
greater than 1.0 and the total variance explained was
70.88% of the total variance. KMO measure of sampling
adequacy was 0.665 indicating sufficient
intercorrelations while the Bartlett’s Test of Sphericity
was significant (2 = 205.965, p< 0.01). The criteria used
by Igbaria et al., (1995) was used to identify and
interpret factors which were: each item should load
0.50 or greater on one factor and 0.35 or lower on the
other factors. Table 1 shows that result of the factor
analysis.
Reliability Analysis
When
• Before forming a composite index to become a
variable from a number of items
Command
Analyze Scale Reliability Analysis (with option
for Statistics item, scale, scale if item deleted)
Interpretation
• alpha value greater than 0.7 is good (differs
from author to author); more than 0.5 is
acceptable; delete some items if necessary
Reliability - SPSS
Cronbach α if the item is deleted:
HATCO Data For purpose of identifying which
item should be excluded in the
scale
Item-Total Statistics
Reliability Statistics
Reliability Statistics
Cronbach's
Alphaa N of Items
Negative Cronbach due to
-.898 4
a. The value is negative due to a negative average
negative loadings for X1 and X3
covariance among items. This violates reliability model
assumptions. You may want to check item codings.
identified earlier in factor analysis
Item-Total Statistics
Cronbach's
Alpha N of Items
.846 2
Item-Total Statistics
• The variables should not correlate too highly (>0.9): that makes it
difficult to determine the unique contribution of the variables to a factor
(multicollinearity).