A Handbook on SEM

Zainudin Awang - Universiti Sultan Zainal Abidin

CHAPTER 2

THE MODELS INVOLVED IN STRUCTURAL

EQUATION MODELING
In dealing with SEM, there are two models involved in the analysis namely:

1. The measurement model – the model that demonstrates the relationship between response items
and their underlying latent construct. The researcher needs to assess this model for uni-
dimensionality, validity, and reliability prior to modeling the structural model.
2. The structural model – the model that demonstrates the inter-relationships among constructs in the
study. The constructs are assembled into the structural model based on the hypothesis stated in the
theoretical framework.

2.1 THE ROLE OF THEORY IN STRUCTURAL EQUATION MODELING

The researcher begins by specifying a theoretical model on the basis of theory. Every construct in the
model is conceptualized as a latent, and the researcher is measuring these constructs using multiple items
in a questionnaire. These items can be developed by researchers, or adopted from literatures customized
to suit the field of present study. The researcher analyzes the measurement model for each construct to
assess how well the generated items representing their underlying construct. The analysis is carried out
using Confirmatory Factor Analysis (CFA). Through the process of CFA, the issues of construct validity
and reliability would be addressed.

The researcher examines the factor loading for each item and the fitness indexes for the construct.
The item having low factor loading that causes poor fitness indexes for the construct should be deleted
from measurement model. After deletion the model is re-specified– and the fitness indexes would
improve. If low factor loadings items are deleted but the fitness indexes for the construct is still low, then
the researcher needs to obtain the Modification Indices (MI). MI indicates the correlation between a pair
of items in a measurement model. High MI means the items are redundant. The researcher needs to delete
one of the two items in order to improve the model fit.

2.2 THE MEASUREMENT MODEL FOR A LATENT CONSTRUCT

The example of a measurement model is given in Figure 1. Here, the latent construct is “service quality”
which cannot be measured directly. Instead, the service quality construct is measured using a set of ten
items in a questionnaire. The ten measuring items are enclosed in Table 1. Caution: The number of items
employed to measure a latent construct should be a minimum of four in order to avoid the ‘model
identification problem’ during the analysis part.

1
 Service Quality is a
Latent Construct

Figure 1: The measurement model for Service Quality construct using ten measuring items

Table 1: The measuring items for Service Quality construct

This university......... Strongly Strongly
Disagree Agree
Q1 has an adequate infrastructure facilities 1 2 3 4 5 6 7 8 9 10
Q2 has a beautiful campus environments 1 2 3 4 5 6 7 8 9 10
Q3 has a good campus transportation system 1 2 3 4 5 6 7 8 9 10
Q4 has adequate academic facilities 1 2 3 4 5 6 7 8 9 10
Q5 has a comfortable cafeteria or food courts 1 2 3 4 5 6 7 8 9 10
Q6 has good sports facilities 1 2 3 4 5 6 7 8 9 10
Q7 has conducive rooms in hostels 1 2 3 4 5 6 7 8 9 10
Q8 has with library with adequate materials 1 2 3 4 5 6 7 8 9 10
Q9 offers a flexible class schedule 1 2 3 4 5 6 7 8 9 10
Q10 has an effective information delivery system 1 2 3 4 5 6 7 8 9 10
nd
Source: Research Methodology and Data Analysis 2 Edition by Zainudin Awang (2012)
 Another example of a measurement model is given in Figure 2. Here, the latent construct is
“customer satisfaction” which cannot be measured directly. Instead, the customer satisfaction construct
(presented in Table 2) is measured using a set of five items in a questionnaire.

Latent Construct

Measuring Item

Figure 2: The measurement model for Customer Satisfaction construct

Table 2: The Measuring Items for Customer Satisfaction Construct
As a student of this university, I am….. Strongly Strongly
Disagree Agree
Q1 satisfied with the system at this university 1 2 3 4 5 6 7 8 9 10
Q2 satisfied with academic rules and regulations 1 2 3 4 5 6 7 8 9 10
Q3 satisfied with the process in obtaining references 1 2 3 4 5 6 7 8 9 10
Q4 satisfied with academic facilities provided 1 2 3 4 5 6 7 8 9 10
Q5 satisfied with the security system on campus 1 2 3 4 5 6 7 8 9 10
Source: Research Methodology and Data Analysis 2nd Edition by Zainudin Awang (2012)

In the measurement model, the researcher models a latent construct and its measuring items. As
presented in Figure 2, the latent construct is customer satisfaction and it is measured using item Q1 to
Q5. The researcher analyzes a measurement model using CFA to assess the meaningfulness of its items
in measuring the construct. In literatures, one would find the measuring items for latent construct are also
called latent indicators, indicator variables, or manifesting variables.
2.3 THE STRUCTURAL MODEL IN AMOS GRAPHIC
In the structural model, the researchers assemble the constructs involved in the study. The positions of
these constructs in the structural model would depend on how these constructs are theorized to relate to
each other – or in other words, depending on the schematic diagram of the model. The beauty of AMOS
is its ability to draw the schematic diagram of a model directly into its graphical interface. Furthermore,
the analysis and its corresponding output are presented exactly on the graphic diagram. To put it in a
more appealing perspective – with AMOS, what you see is what you get.

2.3.1 The Structural Model: Modeling the Correlational

Relationship
The example of a structural model is given in Figure 3. This AMOS graphic is presenting the
correlational relationship between service quality construct (with ten response items) and customer
satisfaction construct (with five response items).
In this structural model (Figure 3), the researcher intends to estimate the correlational relationship
between service quality and customer satisfaction. The service quality construct is measured using ten
response items, while the customer satisfaction construct is measured using five response items.
Remember, the correlational relationship is represented by a double-headed arrow in AMOS
graphic interface. This arrow should be drawn in the clockwise direction to link one latent construct to
another latent construct.

Correlational
Path
 Figure 3: The structural model linking Service Quality to Customer Satisfaction. In AMOS the
double-headed arrow is used to estimate the correlation between the two latent constructs.

2.3.2 The Structural Model: Modeling the Causal Relationship

The example of a structural model for a causal relationship is given in Figure 4. This AMOS graphic is
measuring the causal effects of service quality construct (with ten measuring items) on customer
satisfaction construct (with five measuring items). Both constructs are latent. The measuring items for
service quality construct and customer satisfaction construct are presented in Table 1 and Table 2
respectively.

Causal
Path

Figure 4: The structural model linking Service Quality to Customer Satisfaction. The single headed
arrow is used to estimate the causal effects of Service Quality on Customer Satisfaction.

In the above structural model (Figure 4), the researchers are interested to determine the causal
effect of service quality construct on customer satisfaction construct. Remember: A causal effect is
represented by a single-headed arrow. The arrow is drawn from the latent exogenous construct pointing
to the latent endogenous construct. The position of the arrow itself indicates the exogenous construct is
hypothesized to have significant causal effect on the endogenous construct.
Service Quality is a Latent Exogenous Construct
Customer Satisfaction is a Latent Endogenous Construct
2.3.3 The Structural Model: Modeling the Mediator
The example of a structural model with a mediator construct is given in Figure 5. This AMOS
graphic is presenting the mediating role of customer satisfaction construct. The causal arrow from service
quality construct pointing towards customer satisfaction construct indicates this particular study believes
that service quality performance has a causal effect on customer satisfaction.
In the meantime, another arrow originates from customer satisfaction construct pointing towards
the customer loyalty construct indicate that the level of customer satisfaction is believed to have a causal
effect on customer loyalty.

Mediator
Construct

Endogenous
Construct

Exogenous
Construct

Figure 5: The structural model linking Service Quality, Customer Satisfaction, and Customer Loyalty.

In Figure 5, the researcher is interested to assess the mediating role of Customer Satisfaction in linking Service
Quality to Customer Loyalty. Here, Customer Satisfaction is a mediator construct.

The researcher is modeling the mediating construct of customer satisfaction (Figure 5). The regression
equations involved this structural model:
1. Customer Loyalty is a function of Service Quality
2. Customer Loyalty is a function of Customer Satisfaction
3. Customer Satisfaction is a function of Service Quality
2.4 The Types of Construct in Structural Equation Modeling

Apart from the observed variable, there are a few types of latent construct involved in SEM. Among the
types of construct that researchers need to know are Reflective Construct, Formative Construct, and
Second Order Construct.

2.4.1 The Reflective Construct

As its name implies, the influence of this construct “reflects” on its response items. Thus the single-
headed arrow flows from the construct onto its items. This construct is measured using certain number of
items in a questionnaire. Most of the times, researchers are dealing with the Reflective Constructs in the
structural model. Among the examples of Reflective Constructs are:
i) Customers’ Perceived Quality concerning their service experience – measured using certain
number of items in a questionnaire.
ii) Customers’ Perceived Usefulness towards certain cosmetic product– measured using certain
number of items in questionnaire.
iii) Employee’s Knowledge – the knowledge obtained from undergoing certain training programs
iv) Employee’s Skills – the perceived skills acquired after undergoing certain training programs
v) Employee’s Attitude – the attitude towards task after undergoing certain training programs
 A Reflective Construct:
Arrows flow from Construct
to the items

Figure 6: The measurement model of the Reflective Constructs in AMOS Graphic

2.4.2 The Formative Construct

Formative Construct is a latent construct which is “formed” by certain number of variables. The
variables forming the formative construct are directly measured, thus no measurement error is required.
Among the examples of latent formative constructs are
i) Socio-Economic Status of respondents which is formed by three factors namely Education,
Occupation, and Income.
ii) Student’s Academic Performance which is formed by three assessments made on the student
namely Individual Assessment, Group Assessment and Final Exam.
iii) Company Performance which is formed by three financial measures namely Return on Investment
(ROI), Return of Assets (ROA) and Return on Equity (ROE)
The Formative Construct could also become exogenous as well as Endogenous construct in the structural
model. The illustration of Formative Constructs in AMOS Graphic is given in the following figure.

Variables formed the construct. Formative Construct: The arrow

No measurement error since the flows from variables to form the
variables are directly observed construct

One of the variables must

have a reference point 1

Figure 7: Modeling the Formative Construct in AMOS Graphic

 Formative
Reflective
Construct
Construct

Observe
Variable

Figure 7a: The model consists of Formative Construct, Reflective Construct, and Observed Variables

2.4.3 The Second Order Construct

The Second Order Construct is a construct which consists of a few First Order Constructs. The First
Order Construct is measured using certain number of items in a questionnaire. Sometimes the First Order
Construct is called the Main Construct while the First Order Constructs are the Components of the main
construct. Among the examples of Second Order Construct are:
 Measurement error of the
sub-construct

Measurement error of
the item

The Second Order Construct

- Arrow flows from main
construct to sub-constructs

First Order
Construct or Sub-
Construct

Figure 8: Modeling the Second Order Construct in AMOS Graphic

Example: The AMOS Graphic can take all types of construct in the model
The model in Figure 9 consists of all three types of construct that we just learned.
 Second order construct
HEALTH has two
First order construct
Sub-constructs
STRESS has eight items

Formative construct SES

is measured using three
variables

Figure 9: The model in AMOS Graphic which consists of three types of constructs
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