Christian M.

Ringle, Oliver Götz, Martin Wetzels,

Bradley Wilson

On the Use of Formative Measurement

Specifications in Structural Equation
Modeling: A Monte Carlo Simulation Study
to Compare Covariance-Based and Partial
Least Squares Model Estimation
Methodologies

RM/09/014
 On the Use of Formative Measurement Specifications in Structural

Equation Modeling: A Monte Carlo Simulation Study to Compare

Covariance-Based and Partial Least Squares Model Estimation

Methodologies

Christian M. Ringle; University of Hamburg; Faculty of Business, Economics and Social

Sciences; Von-Melle-Park 5; 20146 Hamburg; Germany; e-mail: cringle@econ.uni-

hamburg.de

Oliver Götz; University of Münster; Marketing Centrum Münster;

Am Stadtgraben 13-15; 48143 Münster; Germany; e-mail: o.goetz@uni-muenster.de

Martin Wetzels; Maastricht University; Faculty of Economics and Business Administration;

P.O. Box 616; 6200 MD Maastricht; The Netherlands; e-mail: m.wetzels@mw.unimaas.nl

Bradley Wilson; RMIT University; School of Applied Communication;

GPO Box 2476V; Melbourne VIC 3001; Australia; e-mail: brad.wilson@rmit.edu.au

 On the Use of Formative Measurement Specifications in Structural

Equation Modeling: A Monte Carlo Simulation Study to Compare

Covariance-Based and Partial Least Squares Model Estimation

Methodologies

Abstract

The broader goal of this paper is to provide social researchers with some analytical guidelines

when investigating structural equation models (SEM) with predominantly a formative

specification. This research is the first to investigate the robustness and precision of

parameter estimates of a formative SEM specification. Two distinctive scenarios (normal and

non-normal data scenarios) are compared with the aid of a Monte Carlo simulation study for

various covariance-based structural equation modeling (CBSEM) estimators and various

partial least squares path modeling (PLS-PM) weighting schemes. Thus, this research is also

one of the first to compare CBSEM and PLS-PM within the same simulation study. We

establish that the maximum likelihood (ML) covariance-based discrepancy function provides

accurate and robust parameter estimates for the formative SEM model under investigation

when the methodological assumptions are met (e.g., adequate sample size, distributional

assumptions, etc.). Under these conditions, ML-CBSEM outperforms PLS-PM. We also

demonstrate that the accuracy and robustness of CBSEM decreases considerably when

methodological requirements are violated, whereas PLS-PM results remain comparatively

robust, e.g. irrespective of the data distribution. These findings are important for researchers

and practitioners when having to choose between CBSEM and PLS-PM methodologies to

estimate formative SEM in their particular research situation.

1
 Introduction

Structural Equation Modeling (SEM) with latent variables is becoming increasingly popular

in social and behavioral science (Boomsma, 2000) . The literature on SEM distinguishes

between two different operationalizations of the relationships between latent variables and

their observed indicators: the reflective (principal factor) and the formative (composite index)

measurement models of latent variable. Numerous studies have by default or erroneously by

design incorrectly specified their items as reflective when they should have used a formative

measurement model operationalization (Jarvis, MacKenzie, & Podsakoff, 2003). This is

somewhat surprising considering the fact that the understanding of formative indicator

orientation is not new (Blalock, 1971) and previous research has focused on the nature,

identification, and validation issues of formative indicators (Bollen & Lennox, 1991;

Diamantopoulos & Winklhofer, 2001; Edwards & Bagozzi, 2000; MacCallum & Browne,

1993).

There are two statistical methodologies for estimating SEM with latent variables

incorporating formative measurement models: the covariance-based (CBSEM) and the partial

least squares path modeling (PLS-PM). A common misunderstanding found in the literature

is that only PLS-PM allows the estimation of SEM that includes formative measurement

models. Even though it has often been neglected, CBSEM is also capable of handling

formative specifications, but requires that the model’s identification be guaranteed and, thus,

that certain model specification rules are followed. These CBSEM specification issues have

been thoroughly addressed by MacCallum & Browne (1993).

Despite the broad discussion and establishment of the formative measurement model

operationalization as a reasonable alternative to the reflective SEM mode, little attention has

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so far been devoted to the conditions under which formative measures and their estimation

method lead to precise and robust coefficients for the population sample (Browne, 1984).

Some CBSEM estimators require the observed variables to be multivariate normally

distributed. Violation of this assumption may distort the standard error of the path coefficient

and parameters of the measurement models. However, the majority of data collected in

behavioral research do not follow multivariate normal distributions (Micceri, 1989). This

property is exacerbated with the use of formative indicators. It would be unreasonable to

expect the observed data to follow a multivariate normal distribution in the population when

using formative indicators.

Consequently, it is important to fully understand the effects of non-normality with respect to

the accuracy and robustness of formative indicators in SEM. Our research is positioned to fill

this gap in the literature, and this paper aims to contribute to the body of knowledge on the

structural equation model specifications with formative (cause) indicators. The uniqueness of

this study is twofold. It is the first one to investigate a model that primarily consists of

formative measurement models by conducting a Monte Carlo simulation study to investigate

the use of formative measurement model operationalization. Secondly, it is also the first one

to compare the robustness and performance of CBSEM with respect to different estimator

discrepancy functions, in concert with PLS-PM and its’ different path weighting schemes. In

this paper, we are mindful of the advice of Boomsma & Hoogland (2001) who, referring to a

CBSEM context, stated that:

The key objective of robustness research is to offer practical guidelines for

applied work, so as to prevent non-robust analyses that would inevitably lead
to wrong substantive inferences. Within that framework, a predominant
question is: if structural models are to be analyzed, what estimation methods
have to be preferred under what conditions? (p. 22)

3
Therefore, the objectives of this research are: (a) to demonstrate the implications of formative

measurement model use in SEM, (b) to systematically and empirically test the accuracy and

robustness of SEM methods with formative measurement models by using Monte Carlo

simulations, and (c) to provide recommendations regarding the appropriate selection of SEM

methods, given their specific research requirements.

This paper is organized as follows: We outline issues relevant to the operationalizing of

formative measurement models and then address the methodological aspects of CBSEM and

PLS-PM with regard to estimating formative relationships within SEM. Building on the

findings of a literature review, we explain the design of our primary Monte Carlo simulation

study on estimating a SEM that predominantly involves formative measurement model

operationalizations by the means of the CBSEM and PLS-PM methodologies. Then, we

highlight the pertinent results for each method and present a comparison of these analytical

outcomes. Finally, we discuss the substantive implications of our findings for SEM

applications and suggest future avenues for further research.

Formative Measurement Model Operationalization

Structural equation modeling applications often involve latent constructs with multiple

indicators. The measurement or outer model specifies the relationship between observable

variables (i.e., indicators) and latent variables. The direction of relationships and their

causality is either in an effect (reflective) or a cause (formative) mode (Bollen, 1989;

MacCallum & Browne, 1993). When discussing the nature and direction of relationships

between constructs and observed measures, the literature on construct validity and associated

measurement issues primarily emphasizes the reflective mode. The reflective measurement

model has its roots in traditional test theory and psychometrics (Nunnally & Bernstein, 1994).

4
Each indicator represents an error-afflicted measurement of the latent variable. The direction

of causality is from the construct to the indicators and observed measures are assumed to

reflect variation in latent constructs. Altering the construct is therefore expected to manifest

in changes in all the multi-item scale indicators.

Research on SEM recognizes that in the early stages of model development and in some

situations, it is appropriate to determine causality from the measures to the construct, rather

than vice versa (Blalock, 1971). Therefore, formative constructs have to be modeled as a

(usually linear) combination of their indicators plus a disturbance term (Diamantopoulos,

2006). A frequently cited example of formative measurement is socio-economic status (SES),

which is viewed as a composite of social and economic indicators such as occupation,

education, residence, and income. If any one of these measures decreases, SES would

decline. Figure 1 clarifies this issue: the arrows either point from the construct to the

(reflective mode) indicators, or in the opposite direction.

-----------------------------------

Insert Figure 1 about here

-----------------------------------

Some researchers provide a conceptual discussion of the differences between formative and

reflective measurement models (Bollen & Lennox, 1991; Diamantopoulos & Winklhofer,

2001; Edwards & Bagozzi, 2000) and design rules for determining the specific type of

measurement model (Jarvis, MacKenzie, & Podsakoff, 2003). Based on these studies, the

decision to use formative measurement models in SEM has specific implications for

researchers.

5
One implication of the direction of causality is that omitting one indicator could omit a

unique part of the formative measurement model and change the meaning of the variable

(Diamantopoulos & Winklhofer, 2001). Thus, some researchers maintain that a formative

measurement model requires a census of all indicators that determine the construct (Jarvis,

MacKenzie, & Podsakoff, 2003). It is therefore quite obvious that formative indicators

frequently do not follow a multinormal distribution. The response profile of our previous

example leads to non-normal item distribution curves with varying degrees of skewness and

kurtosis. This violation of multivariate normality can invalidate statistical hypothesis testing

and strongly influence the choice of SEM estimations (Browne, 1984). It is clear that this

area requires more research attention. Consequently, simulation studies need to investigate

the different CBSEM and PLS-PM statistical estimation techniques to compare their relative

performance in situations involving non-normal formative indicators. This type of research

will lead to a better understanding of each method’s robustness and precision in this specific

research situation.

Formative Structural Equation Modeling Techniques

Two main approaches have been used to estimate formative measurement models within

structural models: the CBSEM and the PLS-PM methods. Both methods have distinctive

statistical characteristics (Fornell & Bookstein, 1982; Schneeweiß, 1991) and selecting an

approach to SEM depends on the particular research situation. CBSEM is the method of

choice for theory testing, while PLS-PM is appropriate for prognosis-oriented applications

(Wold 1982b).

In CBSEM (see Rigdon, 1998), the parameter estimation of a given model minimizes the

difference between the implied covariance matrix and the sample covariance matrix, with the

6
final result permitting the appropriate model fit to be determined. There are alternative

CBSEM estimation techniques available to the researcher. The most commonly used

approaches include: maximum likelihood (ML), generalized least squares (GLS), unweighted

least squares (ULS), and asymptotic distribution free (ADF) estimation (Marcoulides &

Hershberger, 1997). These CBSEM methods vary in their particular minimization of the

discrepancy function, thereby including specific assumptions, for example, regarding sample

size or the multivariate

(non-) normality of data.

The inclusion of formative measures in CBSEM has been well documented by Jöreskog &

Sörbom (2001) and Jöreskog & Goldberger (1975). Williams, Edwards, & Vandenberg

(2003) point out that formative indicators could be modeled in CBSEM by respecifying the

formative indicators as latent exogenous variables with single indicators, fixed unit loadings,

and a fixed measurement error. MacCallum & Brown (1993) illustrate various other

formative model specifications that have adequate model identification. Consequently, if the

hypothesized structural and measurement model is correct in the sense that it explains the

covariance of all the indicators under the given assumption of different estimation methods, it

is believed that the covariance-based methods should provide optimal estimates of the model

parameters.

Instead of using the model to explain the covariance of all the indicators, the PLS-PM

methodology (Wold, 1973, 1974, 1982a, 1982b) maximizes the variance of all dependent

variables. Thus, parameter estimates are obtained based on the ability to minimize the

residual variances of dependent (latent and observed) variables. To obtain the weights and

subsequent loadings and structural estimates, the PLS-PM approach uses a two-stage

7
estimation algorithm (Lohmöller, 1989). In the first stage, after an initial, rather arbitrary,

estimation of the latent variables, the process iteratively switches between the measurement

and the structural model approximation by means of simple and/or multiple regressions until

the parameter estimates converge into a set of weights used for estimating the latent variable

scores. The PLS algorithm thereby aims at minimizing the residual variance of latent

endogenous variables. The second stage involves a non-iterative application of ordinary least

squares regression to obtain the loadings, weights, structural estimates, mean scores, and

location parameters of the latent and observed variables. Three different kinds of weighting

schemes have been used in this context: centroid, factor, and path weighting. Lohmöller

(1989) and Tenenhaus, Vinzi, Chatelin, & Lauro (2005), for instance, present a general

descriptions of the PLS methodology, particularly of the estimation of formative

measurement models, whilst Chin (1998) presents a catalog of non-parametric model PLS-

PM evaluation criteria as this statistical approach does not offer global goodness of fit criteria

as CBSEM does.

In respect of a comparison of CBSEM and PLS (see Lohmöller, 1989), McDonald (1996)

points out that Wold’s (1980) (reflective) PLS Mode-A algorithm, like the ULS Method in

CBSEM, maximizes the sum of the covariances of directly connected composites (subject to

normalized weights). It furthermore allocates a (generally under-identified) rank one

approximation to the individual correlations across the connected blocks of latent variables

and their respective measurement models. On the other hand, Wold’s (1980) (formative) PLS

Mode-B algorithm maximizes the sum of correlations between connected blocks. It has no

exact counterpart in CBSEM and McDonald (1996) conjectures that it would be difficult to

empirically find or construct cases in which the results of PLS Mode-B and certain CBSEM

methods (other than ULS) differ notably. Hence, we designed a simulation study and

8
conducted computational experiments to provide both researchers and practitioners with

additional confidence regarding their decision to select an appropriate estimation technique

for SEM incorporating formative measurement models.

Literature Review

A substantial number of simulation studies on CBSEM (e.g. Boomsma, 1983; Boomsma &

Hoogland, 2001; Paxton, Curran, Bollen, Kirby, & Chen, 2001; Satorra, 1990; Stephenson &

Holbert, 2003) primarily compare alternative CBSEM discrepancy functions and investigate

their estimation bias, accuracy, and robustness with respect to sample size, and third and

fourth-order data moments. Paxton, Curran, Bollen, Kirby, & Chen (2001), for example,

provide an introduction to the design and implementation of a Monte Carlo simulation within

the SEM area. These authors also present a comparison of the maximum likelihood and two-

stage least squares with regard to different sample sizes and misspecifications. Boomsma &

Hoogland (2001) conclude that there are non-convergence problems and improper CBSEM

solutions in small samples (200 and less). Furthermore, under various non-normal conditions,

maximum likelihood estimators in respect of large models have relatively good statistical

properties compared to other CBSEM estimators. Satorra (1990) indicates that generally

maximum likelihood and weighted least squares are robust against the violation of

distributional assumptions. We do not intend to review the whole plethora of CBSEM

robustness studies (especially those with reflective specifications) as this knowledge is

assumed of the reader. Instead, focus is given to the discussion of previous study results

centered on formative model specifications. Even a cursory review will reveal that the

majority of analyses have been presented with models dominant in reflective specifications.

9
With respect to PLS-PM, it is difficult to find published robustness studies compared with the

vast work already completed in the CBSEM realm. There are only a few publications

utilizing PLS-PM that follow this line of research. Cassel, Hackl, & Westlund (1999) have

performed a robustness simulation study on PLS-PM estimates by concentrating on varying

the skewness of reflective indicators and having multicollinearity between latent variables

and an artificial model misspecification. Their simulation results indicate that PLS-PM based

on reflective measurement models is quite robust against skewness, as well as against

multicollinearity between latent variables and misspecification due to the omission of a latent

variable in the structural model. In respect to inner model coefficients, substantial effects are

only observed on the estimates of extremely skewed data and for the erroneous omission of a

highly relevant exogenous latent variable.

Chin & Newsted (1999) employ a Monte Carlo simulation for their analysis on PLS-PM with

small samples. They find that the PLS approach can provide information about the

appropriateness of indicators at sample size as low as 20. This study confirms the consistency

at large (Jöreskog & Wold, 1982) in that the PLS-PM estimates will be asymptotically correct

under the joint conditions of consistency: large sample size and large number of indicators

per latent variable. Moreover, Chin, Marcolin, & Newsted (2003) employ a PLS-PM Monte

Carlo simulation for an interactions effect model for varied sample sizes, altered numbers of

indicators, and for the loading structure of manifest variables in respect of each of the

constructs in their model. They finally provide a comparison of the SEM that incorporates

latent variables with a summated scales approach. The authors provide evidence that

increasing the number of reflective indicators will have a stronger impact on consistent

estimations than increasing the sample size will have. This also holds for higher loadings and

the associated reliabilities.

10
To date, there are only a handful of studies that compare the parameter estimates of both

CBSEM and PLS-PM methods. Tenenhaus, Vinzi, Chatelin, & Lauro (2005) analyze a

European customer satisfaction index (ECSI) model by means of reflective measures to

compare CBSEM and PLS-PM estimates. They find that the outcomes of both methods are at

comparable levels, but that CBSEM provides higher R2 outcomes for the latent endogenous

variables and that PLS-PM exhibits higher correlations between indicators and their

associated latent variable. The latter is due to the PLS-PM estimation being more data driven

and being more substantially influenced by the manifest variables.

The Hsu, Chen, & Hsieh (2006) article features robustness testing of a reflective

measurement model orientation. They compare various estimators, including a more recent

artificial neural network-based (ANN) SEM technique, PLS-PM, and CBSEM estimations of

200 simulated samples in respect of various scenario designs (e.g., skewness of data). The

simulated model only consists of reflective measures and is based on a simple ECSI model

structure. Hsu, Chen, & Hsieh (2006) find that the ANN-based SEM technique is similar to

PLS-PM and conclude that all SEM techniques offer a certain robustness with respect to

skewness of data. The results from this study confirm that PLS-PM underestimates structural

path coefficients and that CBSEM is more sensitive to small sample size problems that

experience larger deviations.

Our literature review reveals that PLS-PM overestimates the outer loadings of latent

constructs and provides more conservative estimates of the inner model than ML-CBSEM.

Furthermore, compared to symmetrical data, PLS-PM and ML-CBSEM estimates that

incorporate reflective measurement models are negligibly influenced by skewness. CBSEM

11
methods are also more sensitive to small sample sizes than PLS-PM. It can thus be concluded

that research on formative measures is still in its early stages regarding the precision and

robustness of coefficients. The review of the literature supports our premise that there has

been a dearth of robustness studies undertaken specifically comparing CBSEM and PLS-PM

with a formative model specification.

Design of the Simulation Study

As we have previously outlined, a researcher has the choice of utilizing CBSEM and PLS-

PM when investigating formative SEMs. This raises the question of which approach to select

for SEM applications containing formative measurement models of the latent exogenous

variables. A Monte Carlo simulation study (Paxton, Curran, Bollen, Kirby, & Chen, 2001)

allows us to address this critical question. Our Monte Carlo design allows us to

systematically study the bias, accuracy, and robustness for both the CBSEM and PLS-PM

techniques’ parameter estimates. The SEM underpinning our design and subsequent analyses

(Figure 2) consists of three latent exogenous variables (ξ1, ξ2 and ξ3) and two latent

endogenous variables (η1 and η2). The manifest variables in the measurement models of the

latent exogenous variables are formatively operationalized, while the latent endogenous

variables are measured reflectively. This simple design specification has been selected for our

simulation for an unambiguous investigation of the effects of non-normality by means of

different SEM methods.

-----------------------------------

Insert Figure 2 about here

-----------------------------------

Researchers have to ensure that their CBSEM has been identified to indicate that the model

fit is indeed a reasonable presentation of the phenomena under investigation. Approaches to

12
test identification (Rigdon, 1995) include following certain rules but also resolving algebraic

solutions, analyzing the information matrix, and evaluating the augmented Jacobian matrix.

The model presented in Figure 2 has been identified, because there are more equations

describing the model than unknown parameters. However, MacCallum & Browne (1993)

address the issue of model identification in CBSEM when formative measurement models are

involved. In keeping with their rules – especially with respect to the formative latent

exogenous variables ξ1 and ξ3, which have only one relationship to a latent endogenous

variable – the variance values of the latent endogenous variables η1 and η2 need to be set to

one in addition to applying the usual reflective CBSEM parameter constraints (Rigdon,

1998). The model in Figure 2 is also appropriate for PLS-PM. Besides other aspects, the

model is recursive, latent variables are estimated by non-overlapping blocks of manifest

variables, and the model operationalization fits the PLS-PM-specific assumptions of predictor

specification (Chin, 1998; Lohmöller, 1989; Tenenhaus, Esposito Vinzi, Chatelin, & Lauro,

2005).

The underlying correlation matrix (Table 5 in the Appendix) of the data generation procedure

has some unique characteristics that are important to note for this study. The manifest

variables x1, x2, and x3 are slightly to moderately correlated, while x4 and x5 have very low

correlations with other manifest variables in the ξ1 measurement model. However, x4 and x5

are strongly correlated with the indicators of the latent variables η1 and η2, while this does

not hold for x1, x2, and x3. The manifest variables x6, x7, and x8 in the measurement model of

the latent exogenous variable ξ2 are poorly correlated. Here, only x6 and x7 have significant

correlations with the η1 and η2 indicators. The manifest variables x9 to x13 in the ξ3

measurement model are slightly to moderately correlated. All five manifest variables have

significant correlations with the indicators of the latent endogenous variable η2. Finally, the

13
manifest variables y1, y2, and y3 in the measurement model of the latent endogenous η1

exhibit strong correlations. The same pattern holds for the η2 indicators. The information on

the correlation pattern is important for analyzing the simulation results.

-----------------------------------

Insert Table 1 about here

-----------------------------------

In this study, we pre-specify the relationships in the SEM according to Table 1 and then

simulate data for the given parameters. The data generation process is consistent with the

procedure described by Chin, Marcolin, & Newsted (2003) for a Monte Carlo PLS-SEM

study. We developed a STATISTICA 7.1 (StatSoft, 2005) macro implementation to perform

this type of approach in two studies: one on multivariate normal data and one on extremely

non-normal data.

The first Monte Carlo simulation study includes the generation of 1000 sets of multivariate

normal data that meet – in an evaluation of data simulation (Boomsma & Hoogland, 2001) –

the expected raw data characteristics, impart convergence of CBSEM estimations, as well as

proper solutions for the structural model regarding the positive sign of variances. Each data

set consists of 300 cases, which is a large enough number for model estimation, as well as

matching the average sample size of SEM simulation studies presented in academic literature

(Stephenson & Holbert, 2003). Although simulation studies on CBSEM (e.g. Curran, Bollen,

Paxton, Kirby, & Chen, 2002; Hu & Bentler, 1999; Marcoulides & Saunders, 2006; Satorra

& Bentler, 2001) and PLS-PM (e.g. Cassel, Hackl, & Westlund, 1999; Chin, Marcolin, &

Newsted, 2003) present varying sample sizes to answer specific methodological research

questions, we do not add this level of complexity, which would also require systematic

alteration of the number of indicators in the measurement models. In this study, we

14
concentrate on CBSEM and PLS-PM comparisons for formative indicator specification.

Previous simulation studies on reflective CBSEM indicate that 300 cases are sufficient to

provide robust estimations, at least for ML-CBSEM estimation (Boomsma & Hoogland,

2001).

The second Monte Carlo simulation study undertaken in this investigation includes the same

analytical design for non-normal data. The non-normal data specification has a skewness of

two and kurtosis of eight, whereby the generation of non-normal multivariate random

parameter values follows the Vale & Maurelli (1983) procedure implemented in the

STATISTICA 7.1 program. This method is an extension of Fleishman’s (1978) approach and,

in comparison to other methods, fits our non-normal data generation purposes better

(Reinartz, Echambadi, & Chin, 2002). The Vale & Maurelli (1983) technique can be used to

generate adequate multivariate random numbers with pre-specified intercorrelations and

univariate means, variances, skews, and kurtosis as efficiently as possible.

Both approaches, CBSEM and PLS-PM, are applied on the SEM in Figure 2 and on each set

of data in the normal, as well as in the non-normal data scenario. This is undertaken

contrasting CBSEM standard estimators (ML, GLS, ADF and ULS) and PLS-PM weighting

schemes (centroid, factor, and path). The CBSEM computational results are also obtained via

STATISTICA 7.1 software by employing a macro program that the authors designed for this

study. In addition, a batch computing module was developed to process the simulated data by

means of the SmartPLS 2.0 (Ringle, Wende, & Will, 2005) software to obtain PLS-PM

results.

15
 Results of the Monte Carlo Simulation Study

The Monte Carlo simulation presented in this study generates normal and non-normal data

for a SEM incorporating formative operationalization of latent exogenous variables. These

data are used to compare the model parameter estimations of the four main CBSEM

discrepancy function procedures. Furthermore, our simulation study evaluates PLS-PM

estimations that employ the different centroid, factor, and path inner model weighting

schemes (Tenenhaus, Esposito Vinzi, Chatelin, & Lauro, 2005). Finally, we compare the

CBSEM and PLS-PM results of the normal and non-normal data scenarios.

Comparison of Alternative CBSEM Model Estimation Techniques

In CBSEM, the parameters of a proposed model are estimated by minimizing the discrepancy

between the empirical covariance matrix and a covariance matrix implied by the model. The

common methods to measure this discrepancy are ML, GLS and ULS. The ADF/WLS

method is a generalization of the other three CBSEM discrepancy functions that use a weight

matrix based on a direct estimation of the residuals’ fourth-order moments (Satorra &

Bentler, 2001). When comparing the average formative model CBSEM estimates of the 1000

sets of normal and non-normal data, we find that the ML (Tables 2 and 3), GLS, and the

ADF/WLS procedure exhibit roughly the same results pattern (Tables 6 to 9 in the

Appendix).

ML and GLS perform at almost comparable levels. The only exception is the robustness of

the formative measurement model estimates in the non-normal data scenario, with ML

providing significantly better outcomes. ADF/WLS performs considerably weaker than the

other two methods do. This study’s results of the formative CBSEM model estimator

performance are consistent with Boomsma & Hoogland’s (2001) findings with regard to

16
reflective measurement models and the same selected number of cases. Our results are

therefore in line with our expectations regarding the methodological characteristics of the

discrepancy functions. The GLS and especially the ADF/WLS model estimation techniques

usually require a high number of observations (several thousand) to provide robust outcomes.

Consequently, the GLS and ADF/WLS results of small and medium-sized samples should

also be interpreted with caution in formative SEM.

The ADF/WLS or ULS for model estimation relaxes the hard assumptions regarding the

multivariate normality of the data when utilizing the ML or GLS estimator. ULS is a special

ADF/WLS case and these methods do not automatically reveal standard errors or an overall

chi-square fit statistic, but provide consistent estimates that are comparable to ML and seem

relatively robust (Satorra, 1990). However, in our analysis, ULS does not fit the results

pattern of the other CBSEM techniques. The average parameter estimations differ strongly

from the given relationships and exhibit elevated deviations and relatively high outliers.

McDonald (1996) confirms that ULS is equivalent to the reflective PLS-PM model

estimation and is thus, ideally, not suited for our study of formative SEM measurement model

operationalization. Consequently, it appears that in respect of the simulated scenarios that we

investigated, ML provides the most appropriate CBSEM estimates, especially with regard to

the moderate study sample size and specified formative model.

Comparison of Alternative PLS Model Estimation Techniques

The next analysis compares the outcomes of the centroid, factor, and path inner model PLS

weighting schemes (Chin, 1998; Lohmöller, 1989; Tenenhaus, Esposito Vinzi, Chatelin, &

Lauro, 2005). Applications of PLS illustrate that the alternative inner model weighting

schemes only lead to marginal differences in the PLS-PM model estimates. Our simulation

17
study confirms this observation (Lohmöller, 1989; Tenenhaus, Esposito Vinzi, Chatelin, &

Lauro, 2005). On average, the alternative weighting schemes provide the same parameter

estimates for the model under investigation (Table 10 in the Appendix).

Comparison of CBSEM and PLS-PM

In our last analysis, we compare CBSEM and PLS-PM estimates for normal (Table 2) and

non-normal (Table 3) data scenarios. This comparison for the cause-effect model employs

ML, which offers the most suitable CBSEM parameter estimations in this simulation study.

Our previous results illustrate that alternative PLS-PM inner weighting schemes provide

almost identical results; we therefore only present PLS results for the path-weighting scheme

as it is most frequently used in PLS-PM applications (Chin, 1998). In our computational

experiments for normal and non-normal data constellations, the comparison of CBSEM and

PLS-PM parameter estimates includes their bias (mean deviation), accuracy (mean absolute

deviation), and robustness (mean squared error).

-----------------------------------

Insert Table 2 about here

-----------------------------------

Mean Deviation. Based on the mean deviation, the simulation study reveals that the ML-

CBSEM estimation has a tendency to overestimate the true parameter values, while the PLS-

PM has the reverse tendency, i.e. underestimating parameters in formative measurement

models (for both normal and non-normal scenarios). It is notable that a bias in the opposite

direction holds in respect of reflective outer measurement models, whereas ML-CBSEM has

a tendency to underestimate and PLS-PM to overestimate the true values (for both

simulations). Finally, ML-CBSEM tends to overestimate the inner relationships in the normal

data scenario and exhibits both directions – overestimation and underestimation of

18
parameters – in the non-normal data scenario, while PLS-PM completely underestimates

those parameters in both simulation scenarios.

-----------------------------------

Insert Table 3 about here

-----------------------------------

Mean Absolute Deviation. In the formative outer model, ML-CBSEM outperforms PLS-PM

in all parameter estimations regarding accuracy in terms of the mean absolute deviation

(MAD). It is important to note that both methods perform considerably better in the formative

measurement model of latent exogenous variable ξ3 compared to ξ1 and ξ2. The formative

indicators of the latter two latent variables consist of a heterogeneous correlation pattern,

while those of the manifest variables in the ξ3 measurement model are relatively

homogenous. In the inner model, ML-CBSEM and PLS-PM perform with great precision

regarding the relationship between the latent endogenous variables η1 and η2. The MAD for

the relationships between the latent exogenous ξ1, ξ2 and ξ3 variables and the latent η1

endogenous variable has a weaker outcome– especially in the case of PLS-PM, which is

considerably less accurate in these relationships than ML-CBSEM – although this outcome is

still at a relatively high level. The highest estimation precision is found in the reflective

measurement models where the MAD for both methods is at a comparable level. Both

procedures reveal two indicators with a significantly higher MAD: With regard to ML-

CBSEM, both of these relationships are in the outer model of η1 (paths to y1 and y3), while

PLS-PM has one indicator with a higher MAD in each of the reflective measurement models

(paths from η1 to y2 and η2 to y4). The accuracy of ML-CBSEM estimates decrease

significantly with regard to the non-normal data scenario in all model relationships, whereas

PLS-PM performs very well and only experiences a slight decrease in deviation with regard

to the formative outer models (Table 4).

19
 -----------------------------------

Insert Table 4 about here

-----------------------------------

Mean Squared Error. The mean squared error (MSE) provides additional information about

the robustness of ML-CBSEM and PLS-PM parameter estimates. In the formative

measurement model and in accordance with the MAD, we find that in the normal data

example both methods have the lowest MSE of the parameter estimates for the latent variable

ξ3, which has indicators with a homogenous correlation pattern. Here, the difference between

the maximum and minimum MSE is 0.005 for ML-CBSEM and 0.005 for PLS-PM, revealing

the high robustness of the computations within the measurement model. In contrast, the MSE

is substantially higher in the outer relationships of the latent variables ξ1 and ξ2. It is

important to note that ML-CBSEM produces many estimates that deviate strongly from the

true constrained population parameters, resulting in an increased MSE. This is most apparent

with those manifest variables that have a high correlation pattern with the indicators of the

latent endogenous variables and, consequently, a high pre-specified outer relationship. The

difference between the maximum and minimum MSE is 0.186 in respect of the outer

relationships of ξ1 and 0.063 for ξ2, indicating a reduced robustness of the ML-CBSEM

parameter estimates. We did not find any comparable patterns in respect of the MSE of the

measurement models estimated with PLS-PM in the normal data scenario. Here, the

difference between the maximum and minimum MSE is 0.011 for the outer relationships of

ξ1 and 0.020 for ξ2, representing a loss of robustness within the measurement model in

comparison to ξ3, but a much better result compared to the ML-CBSEM estimation.

20
We find that ML-CBSEM tends to generate more erratic results– which are associated with

high estimation errors (the difference between the estimated and expected path coefficients) –

in respect of some indicators, while computations for others in the same, critical latent

variable measurement model are robust. On the other hand, PLS-PM exhibits an equal and

slight level of volatility regarding estimation errors in respect of all indicators and,

consequently, a higher robustness for the estimated ξ1 and ξ2 outer relationships. In contrast,

the MSE is considerably lower in the reflective outer models and principally performs at

comparable levels in respect of ML-CBSEM and PLS-PM. Finally, the simulation study’s

inner model estimates provide MSE findings that are similar to those described in respect of

the MAD.

A comparison of the normal data with the non-normal data scenario of these analytical results

provides evidence that ML-CBSEM estimates increase their MSE considerably and, thus,

decrease their robustness in all model relationships (Table 4). In contrast, PLS-PM only

exhibits a slight MSE increase in respect of the formative measurement models, whereas the

robustness of the parameter estimation does not substantially change in respect of the outer

reflective and inner model relationships.

Summary and Conclusion

Researchers in the social sciences disciplines are swiftly moving towards using formative

constructs within their SEM analyses. CBSEM and PLS-PM are two distinctive statistical

techniques with which to estimate these types of models. Furthermore, the decision to apply

the one or the other on a SEM depends on the particular research situation: CBSEM is the

method of choice for theory testing, while PLS-PM is appropriate for prediction-oriented

applications. Nevertheless, there is wide uncertainty about the applicability and behavior of

21
formative measurement model operationalizations when selecting and applying these

techniques. Simulation studies can provide researchers with the confidence they need to

support the application of this kind of SEM. However, the available simulation studies focus

primarily on reflective model specifications. Our contribution is unique in that it is the first

Monte Carlo simulation study to compare CBSEM and PLS-PM results containing formative

indicators. Our five main findings are:

First, the CBSEM and PLS-PM estimates of the simulated sets of data are very close to the

population parameters when averaged. A comparison of CBSEM discrepancy functions

reveals that in our simulations study, ML provides the most appropriate estimates in respect

of a SEM with formative latent exogenous and reflective latent endogenous variables. In

accordance with reflective CBSEM simulation studies, we assume that alternative

discrepancy functions require a greater number of cases than has been used in this study. In

contrast, simulation results of the centroid, factor, and path model weighting schemes provide

evidence that these alternatives for computing the inner PLS model relationships produce

exactly the same results on average. Moreover, other simulation studies indicate that PLS-PM

results are also robust regarding varying sample sizes.

Second, ML-CBSEM has a tendency to overestimate, while PLS-PM has tendency to

underestimate parameters in the formative measurement model. In the formative outer model,

ML-CBSEM outperforms PLS-PM in terms of accuracy of estimates. It is important to note

that both methods perform considerably better in the formative measurement model with a

homogenous correlation pattern than the two with the manifest variables with heterogeneous

correlation patterns. These findings also hold for the robustness of estimates in formative

measurement models.

22
Third, ML-CBSEM has a tendency to underestimate and PLS-PM to overestimate parameters

in reflective outer models. Both methods present similar level outcomes. Compared to the

formative outer models and the inner path model, we observe the highest accuracy and

robustness regarding parameter estimations in the reflective measurement models.

Fourth, ML-CBSEM overestimates inner relationships data, while PLS-PM underestimates

those parameters. We find that ML-CBSEM and PLS-PM perform particularly well in terms

of accuracy and robustness where there is a relationship between the latent endogenous

variables measured by reflective indicators. The accuracy in respect of inner relationships

between latent exogenous and latent endogenous variables with different kinds of

measurement models (formative exogenous and reflective endogenous) has a considerably

weaker outcome, especially regarding PLS-PM. The same finding holds for the robustness of

parameter estimations.

Fifth, CBSEM estimates in the formative measurement and the structural model decrease

significantly regarding accuracy and robustness when data are non-normal, while the

performance regarding reflective measurement models is not affected by changed data

characteristics. We demonstrate the same type of results regarding PLS-PM, but the decrease

in accuracy and robustness is far less.

In conclusion, formative CBSEM provides accurate and robust parameter estimates that are

to some degree superior compared to PLS-PM. In keeping with their analytical goals and

when their particular data situation meets CBSEM requirements, researchers should choose

CBSEM rather than PLS-PM. However, if the premises for the applications of CBSEM are

23
violated, for example, regarding the required minimum number of observations for robust

model estimations, or the multivariate normality assumption in ML-CBSEM, PLS-PM is a

viable alternative. This technique’s results are extremely robust irrespective of sample size

and data distributions. Consequently, PLS-PM provides a viable approximation of model

parameters when the prerequisites for CBSEM are not met. This kind of situation often

occurs in formative scales, which incorporate all independent cause indicators that are

relevant for explaining the latent variable. In, for example, success factor analyses (Lee &

Tsang, 2001; Thatcher, Stepina, & Boyle; Wixom & Watson, 2001) or customer satisfaction

studies (Westlund, Cassel, Eklof, & Hackl, 2001), manifest variables often exhibit non-

normal distribution curves with varying degrees of skewness and kurtosis. PLS-PM should be

the methodology of choice with this particular kind of data and model specification.

Our study is clearly not without limitations. As a first simulation study on formative

indicators, it does not verify the generality of our findings. We emphasize that this work is

intended to represent only a first step in this direction of comprehension. From the

complexity of the estimation procedures, it is clear that the robustness of the model

estimators can hardly be assessed in analytic form. The simulation study which is presented

in this paper gives some insight into the effects of incorporating formative constructs in SEM.

Furthermore, the standard methods of generating non-normal data according to correlation

matrices are limited in terms of the levels of skewness and kurtosis that may be achieved

(e.g., Vale & Maurelli, 1983). Future extensions of the simulation study should focus on

more complex model structures with varied correlation pattern within the formative

measurement model and samples sizes, and should incorporate other methods to generate

data that may reach extremely high levels of skewness and kurtosis. These extensions should

provide an additional basis for generalizing the reported findings to a broader extend.

24
The simulation study provides essential contributions on the body of knowledge for deciding

whether to choose CBSEM or PLS-PM to estimate cause-effect relationship models. We

share the view of Marcoulides and Sounders (2006) that most arguments for selecting PLS-

PM against CBSEM in empirical applications are false or at least dubious. This paper reviews

a key argument that formative measurement models must entail the use of PLS-PM (e.g. Chin

1998). Future research must continue in this direction and provide additional theoretical and

empirical substantiation for a comparison of both methodologies. The results of existing and

yet to come research must be consolidated in order to provide profound advices for researcher

and practitioners to choose an appropriate multivariate analysis method for causal modeling

that fits the goals of their particular analysis under certain model and/or data constellations.

25
 Appendix

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 Tables

Table 1: A-priori specification of relationships in the SEM

Formative Measurement Models

[x1]-{0.1}->(Ksi1) [x6]-{0.4}->(Ksi2) [x9]-{0.4}->(Ksi3)
[x2]-{0.2}->(Ksi1) [x7]-{0.6}->(Ksi2) [x10]-{0.3}->(Ksi3)
[x3]-{0.1}->(Ksi1) [x8]-{0.1}->(Ksi2) [x11]-{0.2}->(Ksi3)
[x4]-{0.6}->(Ksi1) [x12]-{0.2}->(Ksi3)
[x5]-{0.4}->(Ksi1) [x13]-{0.4}->(Ksi3)
Reflective Measurement Models
(Eta1)-{0.8}->[y1] (Eta2)-{0.8}->[y4]
(Eta1)-{0.7}->[y2] (Eta2)-{0.7}->[y5]
(Eta1)-{0.8}->[y3] (Eta2)-{0.8}->[y6]
Inner Model
(Ksi1)-{0.4}->(Eta1)
(Ksi2)-{0.5}->(Eta1)
(Ksi3)-{0.6}->(Eta1)
(Eta1)-{0.6}->(Eta2)

27
Table 2: Simulation results in respect of normal data

Mean Absolute
Mean Value Mean Deviation Deviation Mean Squared Error
Outer Model (Formative) ML PLS ML PLS ML PLS ML PLS
[x1]-{0.1}->(Ksi1) 0.107 0.085 0.008 -0.018 0.135 0.226 0.034 0.080
[x2]-{0.2}->(Ksi1) 0.210 0.177 0.010 -0.026 0.142 0.236 0.046 0.085
[x3]-{0.1}->(Ksi1) 0.105 0.084 -0.004 -0.023 0.137 0.230 0.053 0.079
[x4]-{0.6}->(Ksi1) 0.610 0.452 -0.003 -0.137 0.156 0.234 0.195 0.090
[x5]-{0.4}->(Ksi1) 0.421 0.308 -0.000 -0.078 0.151 0.222 0.220 0.081
[x6]-{0.4}->(Ksi2) 0.433 0.413 0.024 0.020 0.113 0.210 0.081 0.068
[x7]-{0.6}->(Ksi2) 0.649 0.600 0.040 0.000 0.144 0.179 0.112 0.052
[x8]-{0.1}->(Ksi2) 0.102 0.098 0.001 0.001 0.103 0.213 0.018 0.072
[x9]-{0.4}->(Ksi3) 0.408 0.329 0.006 -0.075 0.088 0.154 0.015 0.038
[x10]-{0.3}->(Ksi3) 0.300 0.244 -0.003 -0.057 0.089 0.150 0.015 0.036
[x11]-{0.2}->(Ksi3) 0.199 0.160 0.001 -0.035 0.085 0.146 0.013 0.033
[x12]-{0.2}->(Ksi3) 0.203 0.166 0.003 -0.030 0.093 0.145 0.015 0.033
[x13]-{0.4}->(Ksi3) 0.407 0.321 0.008 -0.073 0.095 0.148 0.018 0.035
Average(abs) 0.008 0.044 0.118 0.192 0.064 0.060
Outer Model (Reflective)
(Eta1)-{0.8}->[y1] 0.682 0.841 -0.115 0.041 0.125 0.041 0.019 0.002
(Eta1)-{0.7}->[y2] 0.648 0.816 -0.049 0.117 0.072 0.117 0.008 0.014
(Eta1)-{0.8}->[y3] 0.682 0.842 -0.114 0.042 0.124 0.042 0.019 0.002
(Eta2)-{0.8}->[y4] 0.765 0.871 -0.038 0.071 0.064 0.071 0.007 0.005
(Eta2)-{0.7}->[y5] 0.720 0.851 0.017 0.151 0.050 0.151 0.005 0.023
(Eta2)-{0.8}->[y6] 0.766 0.871 -0.036 0.072 0.062 0.072 0.006 0.005
Average(abs) 0.062 0.082 0.083 0.082 0.011 0.009
Inner Model
(Ksi1)-{0.4}->(Eta1) 0.398 0.249 -0.001 -0.025 0.048 0.151 0.007 0.025
(Ksi2)-{0.5}->(Eta1) 0.509 0.254 0.005 -0.064 0.072 0.250 0.015 0.064
(Ksi3)-{0.6}->(Eta1) 0.607 0.382 0.002 -0.051 0.057 0.221 0.008 0.051
(Eta1)-{0.6}->(Eta2) 0.597 0.580 0.001 -0.002 0.038 0.035 0.004 0.002
Average(abs) 0.002 0.036 0.054 0.164 0.009 0.036
1 n
1 n ˆ 1 n
Mean Value =
n
∑
i =1
θˆ i ; Mean Deviation = ∑
n i =1
θi − θ ; Mean Absolute Deviation = ∑ θˆ i − θ ;
n i =1
1 n
( )
Mean Squared Error = ∑ θˆ i − θ ; i = 1,...,1000 ; θ̂ = Parameter Estimation ; θ = Population Parameter
n i =1
2

28
Table 3: Simulation results in respect of non-normal data

Mean Value Mean Deviation Mean Absolute Deviation Mean Squared Error
Outer Model (Formative) ML PLS ML PLS ML PLS ML PLS
[x1]-{0.1}->(Ksi1) 0.104 0.084 0.004 -0.016 0.163 0.245 0.052 0.093
[x2]-{0.2}->(Ksi1) 0.215 0.178 0.015 -0.022 0.168 0.248 0.070 0.096
[x3]-{0.1}->(Ksi1) 0.110 0.084 0.010 -0.016 0.154 0.238 0.045 0.085
[x4]-{0.6}->(Ksi1) 0.612 0.453 0.012 -0.147 0.196 0.247 0.310 0.098
[x5]-{0.4}->(Ksi1) 0.418 0.307 0.018 -0.093 0.168 0.248 0.088 0.097
[x6]-{0.4}->(Ksi2) 0.445 0.412 0.045 0.012 0.150 0.229 0.264 0.084
[x7]-{0.6}->(Ksi2) 0.655 0.602 0.055 0.002 0.185 0.204 0.260 0.065
[x8]-{0.1}->(Ksi2) 0.103 0.095 0.003 -0.005 0.120 0.225 0.027 0.080
[x9]-{0.4}->(Ksi3) 0.418 0.329 0.018 -0.071 0.115 0.172 0.030 0.047
[x10]-{0.3}->(Ksi3) 0.307 0.243 0.007 -0.057 0.111 0.168 0.024 0.044
[x11]-{0.2}->(Ksi3) 0.203 0.159 0.003 -0.041 0.112 0.164 0.022 0.042
[x12]-{0.2}->(Ksi3) 0.211 0.167 0.011 -0.033 0.121 0.165 0.025 0.042
[x13]-{0.4}->(Ksi3) 0.413 0.318 0.013 -0.082 0.118 0.172 0.032 0.047
Average(abs) 0.016 0.046 0.145 0.210 0.096 0.071
Outer Model (Reflective)
(Eta1)-{0.8}->[y1] 0.682 0.842 -0.118 0.042 0.132 0.044 0.023 0.002
(Eta1)-{0.7}->[y2] 0.648 0.817 -0.052 0.117 0.083 0.117 0.011 0.014
(Eta1)-{0.8}->[y3] 0.682 0.842 -0.118 0.042 0.132 0.044 0.023 0.002
(Eta2)-{0.8}->[y4] 0.766 0.872 -0.034 0.072 0.074 0.072 0.010 0.006
(Eta2)-{0.7}->[y5] 0.720 0.851 0.020 0.151 0.066 0.151 0.008 0.023
(Eta2)-{0.8}->[y6] 0.767 0.871 -0.033 0.071 0.074 0.071 0.009 0.005
Average(abs) 0.063 0.082 0.094 0.083 0.014 0.009
Inner Model
(Ksi1)-{0.4}->(Eta1) 0.397 0.250 -0.003 -0.025 0.058 0.150 0.009 0.025
(Ksi2)-{0.5}->(Eta1) 0.503 0.255 0.003 -0.063 0.082 0.245 0.020 0.063
(Ksi3)-{0.6}->(Eta1) 0.601 0.384 0.001 -0.050 0.077 0.216 0.014 0.050
(Eta1)-{0.6}->(Eta2) 0.596 0.582 -0.004 -0.002 0.048 0.039 0.007 0.002
Average(abs) 0.003 0.035 0.066 0.162 0.012 0.035
1 n
1 n ˆ 1 n
Mean Value =
n
∑
i =1
θˆ i ; Mean Deviation = ∑
n i =1
θi − θ ; Mean Absolute Deviation = ∑ θˆ i − θ ;
n i =1
1 n
( )
Mean Squared Error = ∑ θˆ i − θ ; i = 1,...,1000 ; θ̂ = Parameter Estimation ; θ = Population Parameter
n i =1
2

29
Table 4: Comparison of simulation results in respect of normal and non-normal data

Relative Absolute Changes between

Normal and Non-Normal Parameter Estimations
Mean Absolute Deviation Mean Squared Error
ML PLS ML PLS
Outer Model (Formative) 0.228 0.093 0.495 0.178
Outer Model (Reflective) 0.131 0.008 0.311 0.029
Inner Model 0.229 -0.011 0.432 -0.019
Average MAD normal - Average MADnonnormal
Relative MAD Change = ;
Average MAD normal
Average MSE normal - Average MSE nonnormal
Relative MSE Change =
Average MSE normal

30
Table 5: Correlation matrix of manifest variables

x1 x2 x3 x4 x5 x6 x7 x8 x9 x10 x11 x12 x13 y1 y2 y3 y4 y5 y6

x1 1.00

x2 0.71 1.00

x3 0.72 0.65 1.00

x4 0.08 0.04 0.09 1.00

x5 -0.01 -0.05 -0.02 0.05 1.00

x6 0.02 0.03 -0.06 0.06 -0.03 1.00

x7 -0.11 -0.12 -0.06 0.00 0.02 -0.01 1.00

x8 -0.13 -0.13 -0.09 -0.05 0.01 0.06 0.10 1.00

x9 0.02 -0.03 0.00 0.06 0.00 -0.02 0.10 -0.06 1.00

x10 0.01 0.07 -0.01 0.03 0.12 -0.03 -0.02 -0.01 0.12 1.00

x11 -0.05 0.04 -0.06 0.07 0.00 0.07 0.01 -0.04 0.24 0.57 1.00

x12 0.03 0.07 -0.02 0.10 0.06 -0.02 0.02 -0.05 0.29 0.49 0.53 1.00

x13 0.03 0.05 0.01 -0.01 0.01 0.05 0.00 -0.01 0.13 0.20 0.29 0.27 1.00

y1 0.06 0.06 0.05 0.54 0.61 0.15 0.19 0.01 0.08 0.08 0.03 0.06 -0.02 1.00

y2 0.00 0.02 0.00 0.54 0.51 0.19 0.16 0.01 0.10 0.04 0.02 0.04 -0.01 0.85 1.00

y3 0.08 0.06 0.08 0.54 0.58 0.09 0.15 0.04 0.11 0.01 0.00 0.03 0.00 0.89 0.83 1.00

y4 0.06 0.07 0.04 0.33 0.30 0.29 0.36 0.04 0.33 0.37 0.39 0.42 0.32 0.58 0.53 0.55 1.00

y5 0.00 0.01 0.01 0.31 0.28 0.26 0.40 0.09 0.29 0.35 0.38 0.35 0.34 0.54 0.51 0.52 0.83 1.00

y6 0.05 0.05 0.01 0.35 0.35 0.29 0.40 0.07 0.35 0.37 0.41 0.39 0.36 0.63 0.57 0.58 0.88 0.86 1.00

31
Table 6: Mean value of alternative CBSEM procedures

Normal Data Non-normal Data

Outer Model
(Formative) ML GLS ADF ULS ML GLS ADF ULS
[x1]-{0.1}->(Ksi1) 0.108 0.106 0.103 0.567 0.104 0.110 0.110 0.599
[x2]-{0.2}->(Ksi1) 0.210 0.207 0.206 0.377 0.215 0.229 0.259 0.374
[x3]-{0.1}->(Ksi1) 0.096 0.101 0.118 0.376 0.110 0.100 0.153 0.370
[x4]-{0.6}->(Ksi1) 0.597 0.592 0.627 0.547 0.612 0.608 0.684 0.563
[x5]-{0.4}->(Ksi1) 0.400 0.406 0.410 0.093 0.418 0.430 0.479 0.091
[x6]-{0.4}->(Ksi2) 0.424 0.422 0.449 0.388 0.445 0.421 0.433 0.397
[x7]-{0.6}->(Ksi2) 0.640 0.631 0.660 0.290 0.655 0.640 0.690 0.300
[x8]-{0.1}->(Ksi2) 0.101 0.097 0.101 0.198 0.103 0.097 0.136 0.191
[x9]-{0.4}->(Ksi3) 0.406 0.401 0.405 0.198 0.418 0.411 0.413 0.201
[x10]-{0.3}->(Ksi3) 0.297 0.294 0.297 0.392 0.307 0.300 0.306 0.391
[x11]-{0.2}->(Ksi3) 0.201 0.200 0.201 0.753 0.203 0.202 0.205 0.752
[x12]-{0.2}->(Ksi3) 0.203 0.199 0.202 0.717 0.211 0.205 0.210 0.715
[x13]-{0.4}->(Ksi3) 0.408 0.403 0.412 0.755 0.413 0.407 0.415 0.752
Outer Model
(Reflective)
(Eta1)-{0.8}->[y1] 0.682 0.694 0.697 0.792 0.682 0.698 0.697 0.793
(Eta1)-{0.7}->[y2] 0.648 0.662 0.663 0.746 0.648 0.666 0.664 0.745
(Eta1)-{0.8}->[y3] 0.682 0.695 0.696 0.792 0.682 0.697 0.696 0.792
(Eta2)-{0.8}->[y4] 0.765 0.765 0.769 0.389 0.766 0.774 0.771 0.394
(Eta2)-{0.7}->[y5] 0.720 0.723 0.729 0.508 0.720 0.730 0.728 0.503
(Eta2)-{0.8}->[y6] 0.766 0.767 0.771 0.570 0.767 0.774 0.776 0.575
Inner Model
(Ksi1)-{0.4}->(Eta1) 0.398 0.407 0.418 0.639 0.397 0.403 0.435 0.640
(Ksi2)-{0.5}->(Eta1) 0.509 0.499 0.499 0.359 0.503 0.506 0.529 0.357
(Ksi3)-{0.6}->(Eta1) 0.607 0.600 0.607 0.419 0.601 0.601 0.624 0.417
(Eta1)-{0.6}->(Eta2) 0.597 0.617 0.619 0.357 0.596 0.619 0.621 0.358

32
Table 7: Mean deviation of alternative CBSEM procedures

Normal Data Non-normal Data

Outer Model
(Formative) ML GLS ADF ULS ML GLS ADF ULS
[x1]-{0.1}->(Ksi1) 0.008 0.006 0.003 0.467 0.004 0.010 0.010 0.499
[x2]-{0.2}->(Ksi1) 0.010 0.007 0.006 0.177 0.015 0.029 0.059 0.174
[x3]-{0.1}->(Ksi1) -0.004 0.001 0.018 0.276 0.010 0.000 0.053 0.270
[x4]-{0.6}->(Ksi1) -0.003 -0.008 0.027 -0.053 0.012 0.008 0.084 -0.037
[x5]-{0.4}->(Ksi1) 0.000 0.006 0.010 -0.307 0.018 0.030 0.079 -0.309
[x6]-{0.4}->(Ksi2) 0.024 0.022 0.049 -0.012 0.045 0.021 0.033 -0.003
[x7]-{0.6}->(Ksi2) 0.040 0.031 0.060 -0.310 0.055 0.040 0.090 -0.300
[x8]-{0.1}->(Ksi2) 0.001 -0.003 0.001 0.098 0.003 -0.003 0.036 0.091
[x9]-{0.4}->(Ksi3) 0.006 0.001 0.005 -0.202 0.018 0.011 0.013 -0.199
[x10]-{0.3}->(Ksi3) -0.003 -0.006 -0.003 0.092 0.007 0.000 0.006 0.091
[x11]-{0.2}->(Ksi3) 0.001 0.000 0.001 0.553 0.003 0.002 0.005 0.552
[x12]-{0.2}->(Ksi3) 0.003 -0.001 0.002 0.517 0.011 0.005 0.010 0.515
[x13]-{0.4}->(Ksi3) 0.008 0.003 0.012 0.355 0.013 0.007 0.015 0.352
Average(abs) 0.008 0.007 0.015 0.263 0.016 0.013 0.038 0.261
Outer Model
(Reflective)
(Eta1)-{0.8}->[y1] -0.115 -0.106 -0.103 -0.008 -0.118 -0.102 -0.103 -0.007
(Eta1)-{0.7}->[y2] -0.049 -0.038 -0.037 0.046 -0.052 -0.034 -0.036 0.045
(Eta1)-{0.8}->[y3] -0.114 -0.105 -0.104 -0.008 -0.118 -0.103 -0.104 -0.008
(Eta2)-{0.8}->[y4] -0.038 -0.035 -0.031 -0.411 -0.034 -0.026 -0.029 -0.406
(Eta2)-{0.7}->[y5] 0.017 0.023 0.029 -0.192 0.020 0.030 0.028 -0.197
(Eta2)-{0.8}->[y6] -0.036 -0.033 -0.029 -0.230 -0.033 -0.026 -0.024 -0.225
Average(abs) 0.062 0.057 0.056 0.149 0.063 0.054 0.054 -0.148
Inner Model
(Ksi1)-{0.4}->(Eta1) -0.001 0.007 0.018 0.239 -0.003 0.003 0.035 0.240
(Ksi2)-{0.5}->(Eta1) 0.005 -0.001 -0.001 -0.141 0.003 0.006 0.029 -0.143
(Ksi3)-{0.6}->(Eta1) 0.002 -0.000 0.007 -0.181 0.001 0.001 0.024 -0.183
(Eta1)-{0.6}->(Eta2) 0.001 0.017 0.019 -0.243 -0.004 0.019 0.021 -0.242
Average(abs) 0.002 0.006 0.011 0.201 0.003 0.007 0.027 -0.202

33
Table 8: Mean absolute deviation of alternative CBSEM procedures

Normal Data Non-normal Data

Outer Model
(Formative) ML GLS ADF ULS ML GLS ADF ULS
[x1]-{0.1}->(Ksi1) 0.135 0.137 0.195 0.474 0.163 0.177 0.251 0.509
[x2]-{0.2}->(Ksi1) 0.142 0.139 0.209 0.229 0.168 0.181 0.266 0.243
[x3]-{0.1}->(Ksi1) 0.137 0.138 0.201 0.283 0.154 0.168 0.266 0.303
[x4]-{0.6}->(Ksi1) 0.156 0.167 0.271 0.140 0.196 0.272 0.404 0.184
[x5]-{0.4}->(Ksi1) 0.151 0.141 0.210 0.312 0.168 0.184 0.309 0.323
[x6]-{0.4}->(Ksi2) 0.113 0.117 0.193 0.106 0.150 0.153 0.241 0.133
[x7]-{0.6}->(Ksi2) 0.144 0.140 0.220 0.319 0.185 0.183 0.306 0.326
[x8]-{0.1}->(Ksi2) 0.103 0.104 0.147 0.134 0.120 0.118 0.190 0.149
[x9]-{0.4}->(Ksi3) 0.088 0.086 0.133 0.220 0.115 0.110 0.169 0.227
[x10]-{0.3}->(Ksi3) 0.089 0.089 0.129 0.139 0.111 0.110 0.162 0.157
[x11]-{0.2}->(Ksi3) 0.085 0.088 0.127 0.553 0.112 0.115 0.159 0.552
[x12]-{0.2}->(Ksi3) 0.093 0.092 0.133 0.517 0.121 0.119 0.156 0.515
[x13]-{0.4}->(Ksi3) 0.095 0.095 0.138 0.355 0.118 0.114 0.175 0.352
Average(abs) 0.118 0.118 0.177 0.291 0.145 0.154 0.235 0.306
Outer Model
(Reflective)
(Eta1)-{0.8}->[y1] 0.125 0.118 0.132 0.033 0.132 0.121 0.141 0.041
(Eta1)-{0.7}->[y2] 0.072 0.068 0.094 0.055 0.083 0.078 0.106 0.057
(Eta1)-{0.8}->[y3] 0.124 0.117 0.131 0.035 0.132 0.120 0.140 0.040
(Eta2)-{0.8}->[y4] 0.064 0.073 0.099 0.411 0.074 0.087 0.116 0.407
(Eta2)-{0.7}->[y5] 0.050 0.062 0.090 0.205 0.066 0.080 0.100 0.210
(Eta2)-{0.8}->[y6] 0.062 0.071 0.100 0.233 0.074 0.086 0.113 0.231
Average(abs) 0.083 0.085 0.108 0.162 0.094 0.095 0.119 0.164
Inner Model
(Ksi1)-{0.4}->(Eta1) 0.048 0.059 0.096 0.239 0.058 0.066 0.136 0.240
(Ksi2)-{0.5}->(Eta1) 0.072 0.066 0.103 0.141 0.082 0.073 0.142 0.144
(Ksi3)-{0.6}->(Eta1) 0.057 0.050 0.086 0.181 0.077 0.066 0.127 0.183
(Eta1)-{0.6}->(Eta2) 0.038 0.037 0.062 0.243 0.048 0.048 0.086 0.242
Average(abs) 0.054 0.053 0.087 0.201 0.066 0.063 0.123 0.202

34
Table 9: Mean squared error of alternative CBSEM procedures

Normal Data Non-normal Data

Outer Model
(Formative) ML GLS ADF ULS ML GLS ADF ULS
[x1]-{0.1}->(Ksi1) 0.034 0.036 0.069 0.319 0.052 0.174 0.322 0.729
[x2]-{0.2}->(Ksi1) 0.046 0.041 0.112 0.091 0.070 0.176 0.297 0.130
[x3]-{0.1}->(Ksi1) 0.053 0.042 0.090 0.115 0.045 0.141 0.302 0.268
[x4]-{0.6}->(Ksi1) 0.195 0.176 0.460 0.043 0.310 2.757 2.826 0.212
[x5]-{0.4}->(Ksi1) 0.220 0.054 0.096 0.120 0.088 0.243 0.703 0.132
[x6]-{0.4}->(Ksi2) 0.081 0.086 0.198 0.023 0.264 0.282 0.422 0.044
[x7]-{0.6}->(Ksi2) 0.112 0.142 0.225 0.119 0.260 0.446 0.972 0.130
[x8]-{0.1}->(Ksi2) 0.018 0.019 0.036 0.031 0.027 0.025 0.145 0.039
[x9]-{0.4}->(Ksi3) 0.015 0.015 0.032 0.064 0.030 0.025 0.054 0.071
[x10]-{0.3}->(Ksi3) 0.015 0.016 0.031 0.037 0.024 0.024 0.049 0.050
[x11]-{0.2}->(Ksi3) 0.013 0.013 0.027 0.310 0.022 0.025 0.049 0.310
[x12]-{0.2}->(Ksi3) 0.015 0.015 0.030 0.271 0.025 0.024 0.044 0.269
[x13]-{0.4}->(Ksi3) 0.018 0.020 0.038 0.130 0.032 0.030 0.065 0.129
Average(abs) 0.064 0.052 0.111 0.129 0.096 0.336 0.481 0.193
Outer Model
(Reflective)
(Eta1)-{0.8}->[y1] 0.019 0.019 0.025 0.003 0.023 0.020 0.030 0.004
(Eta1)-{0.7}->[y2] 0.008 0.008 0.015 0.006 0.011 0.010 0.019 0.007
(Eta1)-{0.8}->[y3] 0.019 0.018 0.025 0.003 0.023 0.020 0.029 0.004
(Eta2)-{0.8}->[y4] 0.007 0.009 0.020 0.175 0.010 0.014 0.023 0.175
(Eta2)-{0.7}->[y5] 0.005 0.008 0.019 0.050 0.008 0.014 0.021 0.052
(Eta2)-{0.8}->[y6] 0.006 0.009 0.020 0.064 0.009 0.014 0.022 0.065
Average(abs) 0.011 0.012 0.021 0.050 0.014 0.016 0.024 0.051
Inner Model
(Ksi1)-{0.4}->(Eta1) 0.007 0.011 0.020 0.061 0.009 0.015 0.066 0.063
(Ksi2)-{0.5}->(Eta1) 0.015 0.015 0.024 0.022 0.020 0.019 0.050 0.024
(Ksi3)-{0.6}->(Eta1) 0.008 0.008 0.017 0.035 0.014 0.014 0.046 0.037
(Eta1)-{0.6}->(Eta2) 0.004 0.005 0.010 0.061 0.007 0.007 0.015 0.062
Average(abs) 0.009 0.010 0.018 0.045 0.012 0.014 0.045 0.046

35
Table 10: Comparison of alternative PLS weighting schemes in respect of normal data

Mean Value Mean Deviation

Centroid Factor Path Centroid Factor Path
Outer Model (Formative)
[x1]-{0.1}->(Ksi1) 0,093 0,092 0,092 -0,007 -0,008 -0,008
[x2]-{0.2}->(Ksi1) 0,192 0,191 0,191 -0,008 -0,009 -0,009
[x3]-{0.1}->(Ksi1) 0,074 0,074 0,074 -0,026 -0,026 -0,026
[x4]-{0.6}->(Ksi1) 0,446 0,446 0,446 -0,154 -0,154 -0,154
[x5]-{0.4}->(Ksi1) 0,314 0,314 0,314 -0,086 -0,086 -0,086
[x6]-{0.4}->(Ksi2) 0,397 0,397 0,397 -0,003 -0,003 -0,003
[x7]-{0.6}->(Ksi2) 0,608 0,608 0,608 0,008 0,008 0,008
[x8]-{0.1}->(Ksi2) 0,116 0,116 0,116 0,016 0,016 0,016
[x9]-{0.4}->(Ksi3) 0,343 0,343 0,343 -0,057 -0,057 -0,057
[x10]-{0.3}->(Ksi3) 0,234 0,234 0,234 -0,066 -0,066 -0,066
[x11]-{0.2}->(Ksi3) 0,157 0,157 0,157 -0,043 -0,043 -0,043
[x12]-{0.2}->(Ksi3) 0,175 0,175 0,175 -0,025 -0,025 -0,025
[x13]-{0.4}->(Ksi3) 0,319 0,319 0,319 -0,081 -0,081 -0,081
Outer Model (Reflective)
(Eta1)-{0.8}->[y1] 0,842 0,841 0,841 0,042 0,041 0,041
(Eta1)-{0.7}->[y2] 0,817 0,817 0,817 0,117 0,117 0,117
(Eta1)-{0.8}->[y3] 0,842 0,842 0,842 0,042 0,042 0,042
(Eta2)-{0.8}->[y4] 0,872 0,872 0,872 0,072 0,072 0,072
(Eta2)-{0.7}->[y5] 0,850 0,850 0,850 0,150 0,150 0,150
(Eta2)-{0.8}->[y6] 0,872 0,872 0,872 0,072 0,072 0,072
Inner Model
(Ksi1)-{0.4}->(Eta1) 0,248 0,248 0,248 -0,152 -0,152 -0,152
(Ksi2)-{0.5}->(Eta1) 0,255 0,254 0,254 -0,245 -0,246 -0,246
(Ksi3)-{0.6}->(Eta1) 0,379 0,379 0,379 -0,221 -0,221 -0,221
(Eta1)-{0.6}->(Eta2) 0,578 0,578 0,578 -0,022 -0,022 -0,022

36
 Figures

Figure 1: Comparison of reflective and formative measurement models (Diamantopoulos,

2006; Edwards & Bagozzi, 2000)

δξ

ξ1 ξ2
λ11 λ21 λ31 π24 π25 π26

x1 x2 x3 x4 x5 x6
r45 r56
r46
δ1 δ2 δ3

Reflective Measurement Model Formative Measurement Model

37
Figure 2: The structural model tested in a simulated study.

y1 y2 y3 y4 y5 y6

η1 η2

ξ1 ξ2 ξ3

x1 X2 x3 x4 x5 x6 x7 x8 x9 x10 x11 x12 x13

38
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