Structural Equation Modeling and Path Analysis

Structural Equation Modeling and Path
Analysis
Structural Equation Modeling
(SEM)
Structural equation modeling (SEM), a procedure for

estimating a series of dependence relationships
among a set of concepts or constructs represented
by multiple measured variables and incorporated
into an integrated model.
Copyright © 2019, 2010, 2007 by Pearson Education, Inc. All Rights Reserved.
Structural Equation Modeling:
Distinctive Aspects
1. Representation of constructs as unobservable or

latent factors in dependence relationships.
2. Estimation of multiple and interrelated
dependence relationships incorporated in an
integrated model.
3. Incorporation of measurement error in an explicit
manner.
4. Explanation of the covariance among the
observed variables.
Statistics Associated with SEM (1
of 7)
Absolute fit indices These indices measure the overall goodness-of-fit

or badness-of-fit for both the measurement and structural models.
Average variance extracted A measure used to assess convergent
and discriminant validity, which is defined as the variance in the
indicators or observed variables that is explained by the latent
construct.
Chi-square difference statistic (Δχ2) A statistic used to compare two
competing, nested SEM models. It is calculated as the difference
between the models’ chi-square value. Its degrees of freedom
equal the difference in the models’ degrees of freedom.
Communality Communality is the variance of a measured variable
that is explained by its construct.
Composite reliability (CR) It is defined as the total amount of true
score variance in relation to the total score variance.
of 7)
Confirmatory factor analysis (CFA) A technique used to estimate the

measurement model. It seeks to confirm if the number of factors (or
constructs) and the loadings of observed (indicator) variables on
them conform to what is expected on the basis of theory.
Construct In SEM, a construct is a latent or unobservable concept
that can be defined conceptually but that cannot be measured
directly or without error. Also called a factor, a construct is measured
by multiple indicators or observed variables.
Endogenous constructs An endogenous construct is the latent, multi-
item equivalent of a dependent variable. It is determined by
constructs or variables within the model and, thus, it is dependent on
other constructs.
Estimated covariance matrix Denoted by Σk , it consists of the
predicted covariances between all observed variables based on
equations estimated in SEM.
of 7)
Exogenous construct An exogenous construct is the latent, multi-item

equivalent of an independent variable in traditional multivariate
analysis. An exogenous construct is determined by factors outside of
the model and it cannot be explained by any other construct or
variable in the model.
First-order factor model Covariances between observed variables
are explained with a single latent factor or construct layer.
Incremental fit indices These measures assess how well a model
specified by the researcher fits relative to some alternative baseline
model. Typically, the baseline model is a null model in which all
observed variables are unrelated to each other.
Measurement error It is the degree to which the observed variables
do not describe the latent constructs of interest in SEM.
of 7)
Measurement model The first of two models estimated in SEM. It

represents the theory that specifies the observed variables for each
construct and permits the assessment of construct validity.
Modification index An index calculated for each possible
relationship that is not freely estimated but is fixed. The index shows
the improvement in the overall model χ2 if that path was freely
estimated.
Nested model A model is nested within another model if it has the
same number of constructs and variables and can be derived from
the other model by altering relationships, as by adding or deleting
relationships.
Nonrecursive model A structural model that contains feedback
loops or dual dependencies.
of 7)
Parsimony fit indices The parsimony fit indices are designed to assess
fit in relation to model complexity and are useful in evaluating
competing models. These are goodness-of-fit measures and can be
improved by a better fit or by a simpler, less complex model that
estimates fewer parameters.
Parsimony ratio Is calculated as the ratio of degrees of freedom
used by the model to the total degrees of freedom available.
Path analysis A special case of SEM with only single indicators for
each of the variables in the causal model. In other words, path
analysis is SEM with a structural model, but no measurement model.
Path diagram A graphical representation of a model showing the
complete set of relationships amongst the constructs. Dependence
relationships are portrayed by straight arrows and correlational
relationships by curved arrows.
of 7)
Residuals In SEM, the residuals are the differences between the

observed and estimated covariance matrices.
Recursive model A structural model that does not contain any
feedback loops or dual dependencies.
Sample covariance matrix Denoted by S, it consists of the variances
and covariances for the observed variables.
Second-order factor model There are two levels or layers. A second-
order latent construct causes multiple first-order latent constructs,
which in turn cause the observed variables. Thus, the first-order
constructs now act as indicators or observed variables for the
second order factor.
Squared multiple correlations Similar to communality, these values
denote the extent to which an observed variable’s variance is
explained by a latent construct or factor.
of 7)
Standardized residuals Used as a diagnostic measure of model fit,

these are residuals, each divided by its standard error.
Structural error Structural error is the same as an error term in
regression analysis. In the case of completely standardized estimates,
squared multiple correlation is equal to 1 – the structural error.
Structural model The second of two models estimated in SEM. It
represents the theory that specifies how the constructs are related to
each other, often with multiple dependence relationships.
Structural relationship Dependence relationship between an
endogenous construct and another exogenous or endogenous
construct.
Unidimensionality A notion that a set of observed variables represent
only one underlying construct. All cross-loadings are zero.
Exogenous and Endogenous
Constructs
Exogenous constructs are the latent, multi-item equivalent of

independent variables. They use a variate (linear combination) of
measures to represent the construct, which acts as an
independent variable in the model.
Multiple measured variables (X) represent the exogenous constructs (ξ).
Endogenous constructs are the latent, multi-item equivalent to
dependent variables. These constructs are theoretically
determined by factors within the model.
Multiple measured variables (Y) represent the endogenous constructs
(η).
SEM Models
Models can be represented visually with a path diagram.
Dependence relationships are represented with single-headed

straight arrows.
Correlational (covariance) relationships are represented with

two-headed curved arrows.
Dependence and
Correlational Relationships in
SEM
Figure 22.1 Dependence and Correlational Relationships in a Simple SEM
Model
Conducting SEM
Steps in SEM
Step 1: Define the Individual Constructs
Step 2: Specify the Measurement Model
Step 3: Assess Measurement Model Reliability and
Validity
Step 4: Specify the Structural Model
Step 5: Assess Structural Model Validity
Step 6: Draw Conclusions and Make
Recommendations
The Process for Structural
Equation Modeling
Figure 22.2 The Process
for Structural Equation
Modeling
Path Diagram of a Simple
Measurement Model
Figure 22.3 Path Diagram of a Simple Measurement Model
A Simple Measurement Model
In Figure 22.3, ξ1 represents the latent construct C1 , ξ2

represents the latent construct C2, x1 − x6 represent the
measured variables, λx1,1 − λχ6,2 represent the
relationships between the latent constructs and the
respective measured items (i.e; factor loadings), and δ1
− δ6 represent the errors.
Types of Fit Measures
1. Absolute fit measures overall goodness- or badness-of-fit
for both the structural and measurement models. This
type of measure does not make any comparison to a
specified null model (incremental fit measure) or adjusts
for the number of parameters in the estimated model
(parsimonious fit measure).
2. Incremental fit measures goodness-of-fit that compares
the current model to a specified “null” (independence)
model to determine the degree of improvement over
the null model.
3. Parsimonious fit measures goodness-of-fit representing
the degree of model fit per estimated coefficient. This
measure attempts to correct for any “overfitting” of the
model and evaluates the parsimony of the model
compared to the goodness-of-fit.
A Classification of Fit Measures
Figure 22.4 A Classification of Fit Measures
Assessing Model Fit: Chi-square
c = (n - 1)(S - å k )
2
1
df = [( p )( p + 1)] - k
2
Assessing Model Fit: Fit Indexes
Multiple fit indices should be used to assess a model’s

goodness of fit. They should include:
 The χ2 value and the associated df
 Two absolute fit indices (GFI, AGFI, RMSEA, or SRMR)
 One goodness-of-fit index (GFI, AGFI)
 One badness-of-fit index (RMSR, SRMR, RMSEA)
 One incremental fit index (CFI, TLI, NFI, NNFI, RNI)
 One parsimony fit index for models of different
complexities (PGFI, PNFI)
Composite Reliability (CR)
2
æ p ö÷
çç l ÷
çèåi = 1 i ø÷
÷
CR = 2
æ p ö÷ æ p ö
çç l ÷ + çç var(d )÷
çèåi = 1 i ø÷ å i ÷
÷
ç
÷ è i= 1 ø÷
where
CR = composite reliability
λ = completely standardized factor loading
var (δ ) = error variance
p = number of indicators or observed variables
Average Variance Extracted
(AVE)
p
åi= 1
l i2
AVE = p p
åi= 1
l i2 + å
i= 1
var(di )
Where
AVE = Average variance extracted
λ = Completely Standardized factor loading
δ = Error variance
p = number of indicators or observed variables
Path Diagram of a Simple
Structural Model
Figure 22.5 Path Diagram of a Simple Structural Model
Chi-Square Difference Test
2
D c Δdf = c df2 (M1) - c df2 (M2)
and
Δdf = df (M1)- df (M2)
First-Order Model of IUIPC
Figure 22.6 First-Order Model of IUIPC
Second-Order Model of IUIPC
Figure 22.7 Second-Order Model of IUIPC
Measurement Model for TAM
Figure 22.8 Measurement Model for TAM
Structural Model for TAM
Figure 22.9 Structural Model for TAM
TAM: Means, Standard
Deviations, and Correlations
Table 22.1 TAM Model: Means, Standard Deviations,
and Correlations
blank ME SD 1 2 3 4 5 6 7 8 9
blank blank blank blank blank blank blank blank
1. PU1 3.58 1.37 1
blank blank blank blank blank blank blank
2. PU2 3.58 1.37 .900* 1
blank blank blank blank blank blank
3. PU3 3.58 1.36 .886* .941* 1
blank blank blank blank blank
4. PE1 4.70 1.35 .357* .403* .392* 1
blank blank blank blank
5. PE2 4.76 1.34 .350* .374* .393* .845* 1
blank blank blank
6. PE3 4.79 1.32 .340* .356* .348* .846* .926* 1
blank blank
7. INT1 3.72 2.10 .520* .545* .532* .442* .419* .425* 1
8. INT2 3.84 2.12 .513* .537* .540* .456* .433* .432* .958* 1 blank
9. INT3 3.68 2.08 .534* .557* .559* .461* .448* .437* .959* .950* 1
Notes:
 ME = means; SD = standard deviations
 *p < 0.05
TAM: Results of Measurement
Model
Table 22.2 TAM Model: Results of Measurement Model
Constructs Items Item Loadings Item Errors CR AVE
blank blank blank
PU 0.97 0.91
blank blank blank
PU1 0.92*** 0.15***
blank blank blank
PU2 0.98*** 0.05***
blank blank blank
PU3 0.96*** 0.07***
blank blank blank
PE 0.95 0.87
blank blank blank
PE1 0.88*** 0.23***
blank blank blank
PE2 0.96*** 0.07***
blank blank blank
PE3 0.96*** 0.08***
blank blank blank
INT 0.98 0.95
blank blank blank
INT2 0.98*** 0.03***
blank blank blank
INT2 0.97*** 0.05***
blank blank blank
INT3 0.98*** 0.05***
Notes:
 CR = composite reliability; AVE = average variance extracted
 ***p < 0.001 (two-tailed)
Banking Application:
Measurement Model
Figure 22.10 Measurement Model for Banking Application
Banking Application: Structure
Model
Figure 22.11 Structural Model for Banking Application
Psychometric Properties of
Measurement
Table Model
22.3 Service Quality Model: Psychometric Properties of
(1 of 2)
Measurement Model
When it comes to… Loadings Measurement

Error Variance
TANG1: Modern equipment 0.71 0.49
TANG2: Visual appeal of physical facilities 0.80 0.36
TANG3: Neat, professional appearance of employees 0.76 0.42
TANG4: Visual appeal of materials associated with the service 0.72 0.48
REL1: Keeping a promise by a certain time 0.79 0.37
REL2: Performing service right the first time 0.83 0.31
REL3: Providing service at the promised time 0.91 0.18
REL4: Telling customers the exact time the service will be performed 0.81 0.34
RESP1: Giving prompt service to customers 0.73 0.47
RESP2: Willingness to always help customers 0.89 0.21
RESP3: Responding to customer requests despite being busy 0.81 0.35
ASSU1: Employees instilling confidence in customers 0.81 0.35
ASSU2: Customers’ safety feelings in transactions (e.g., physical, financial, 0.71 0.49
emotional, etc.)
Psychometric Properties of
Measurement
[Table 22.3 Continued] Model (2 of 2)
ASSU3: Consistent courtesy to customers 0.80 0.36
ASSU4: Employees’ knowledge to answer customer questions 0.86 0.26
EMP1: Giving customers individual attention 0.80 0.37
EMP2: Dealing with customers with care 0.84 0.29
EMP3: Having customer’s best interests at heart 0.87 0.24
EMP4: Understanding specific needs of customers 0.87 0.24
Overall attitude toward your bank (items reverse coded): Blank Blank
ATT1: Favorable 1—−2—−3—−4—−5—−6—−7 Unfavorable 0.95 0.10
ATT2: Good 1—−2—−3—−4—−5—−6—−7 Bad 0.95 0.10
ATT3: Positive 1—−2—−3—−4—−5—−6—−7 Negative 0.95 0.10
ATT4: Pleasant 1—−2—−3—−4—−5—−6—−7 Unpleasant 0.95 0.10
SAT1: I believe I am satisfied with my bank’s services 0.93 0.14
SAT2: Overall, I am pleased with my bank’s services 0.93 0.14
SAT3: Using services from my bank is usually a satisfying experience 0.88 0.23
SAT4: My feelings toward my bank’s services can best be characterized as 0.92 0.15
PAT1: The next time my friend needs the services of a bank I will recommend my 0.88 0.22
bank
PAT2: I have no regrets of having patronized my bank in the past 0.89 0.20
PAT3: I will continue to patronize the services of my bank in the future 0.88 0.22
Goodness of Fit Statistics
Measurement Model
Table 22.4 Goodness-of-Fit Statistics (Measurement Model)
Degrees of freedom = 377

Minimum fit function chi-square = 767.77 (P = 0.0)
Chi-Square for independence model with 435 degrees of freedom =
7780.15
Root mean square error of approximation (RMSEA) = 0.064
Standardized RMR = 0.041
Normed fit index (NFI) = 0.90
Non-normed fit index (NNFI) = 0.94
Comparative fit index (CFI) = 0.95
Measurement Model: Construct
Reliability, Average Variance
Table 22.5 Measurement Model: Construct Reliability,
Extracted
Average & Correlation
Variance Matrix
Extracted, and Correlation Matrix
Correlation Matrix
Average
Construct Variance
Construct Reliability Extracted 1 2 3 4 5 6 7 8
blank blank blank blank blank blank blank
1. TANG 0.84 0.56 0.75
blank blank blank blank blank blank
2. REL 0.90 0.70 0.77 0.84
blank blank blank blank blank
3. RESP 0.85 0.66 0.65 0.76 0.81
blank blank blank blank
4. ASSU 0.87 0.63 0.73 0.80 0.92 0.80
blank blank blank
5. EMP 0.91 0.71 0.69 0.75 0.85 0.90 0.85
blank blank
6. ATT 0.97 0.90 0.42 0.46 0.52 0.54 0.58 0.95
blank
7. SAT 0.85 0.83 0.53 0.56 0.66 0.67 0.69 0.72 0.91
8. PAT 0.92 0.78 0.50 0.55 0.57 0.62 0.62 0.66 0.89 0.89
TANG = tangibility; REL = reliability; RESP = responsiveness; ASSU = assurance; EMP =
empathy; ATT = attitude; SAT = satisfaction; PAT = patronage
Value on the diagonal of the correlation matrix is the square root of AVE.
Goodness of Fit Statistics
(Structural Model)
Table 22.6 Goodness-of-Fit Statistics (Structural Model)
Degrees of freedom = 396

Minimum fit function chi-square = 817.16 (P = 0.0)
Chi-square for independence model with 435 degrees of freedom =
7780.15
Root mean square error of approximation (RMSEA) = 0.065
Standardized RMR = 0.096
Normed fit index (NFI) = 0.89
Non-normed fit index (NNFI) = 0.94
Comparative fit index (CFI) = 0.94
Banking Application: Structural
Coefficients
Table 22.7 Structural Model Coefficients
Dimensions of Service Quality blank Second-Order Loading Estimates T-values

TANG γ11 0.82 λ fixed to
1
REL γ21 0.85 13.15
RESP γ31 0.93 13.37
ASSU γ41 0.98 16.45
EMP γ51 0.93 15.18
Consequences of Service blank Structural Coefficient Estimates blank
Quality
SQ →ATT γ61 0.60 10.25
SQ → SAT γ71 0.45 8.25
ATT → SAT β76 0.47 8.91
ATT → PAT β86 0.03 0.48
SAT → PAT β87 0.88 13.75
Path Analysis
Path analysis A special case of SEM with only single

indicators for each of the variables in the causal
model. In other words, path analysis is SEM with a
structural model, but no measurement model.
Diagram for Path Analysis
Figure 22.12 Diagram for Path Analysis
Path Analysis: Calculating
Structural Coefficients (1 of 2)
Figure 22.12 portrays a simple model with two exogenous
constructs X1 and X2 causally related to the endogenous
construct Y1. The correlational path A is X1 correlated with
X2. Path B is the effect of X1 predicting Y1, and path C
shows the effect of X2 predicting Y1. The value for Y1 can be
modeled as:
Y1 = b1 X1 + b2X2
Note that this is similar to a regression equation. The direct
and indirect paths in our model can now be identified.
Direct Paths Indirect Paths
A = X1 to X2 AC = X1 to Y1 (via X2)
B = X1 to Y1 AB = X2 to Y1 (via X1)
C = X2 to Y1 BLANK
Structural Coefficients (2 of 2)
The unique correlations among the three constructs can

be shown to be composed of direct and indirect paths as
follows:
Corrx1, x2 = A
Corrx1, y1 = B + AC
Corrx2, y1 = C + AB
The correlation of X1 and X2 is simply equal to A. The

Correlation of X1 and Y1 ( Corrx1,y1 ) can be represented by
two paths: B and AC. B represents the direct path from X1
to Y1. AC is a compound path that follows the curved
arrow from X1 to X2 and then to Y1. Similarly, the correlation
of X2 and Y1 can be shown to consist of two causal paths:
C and AB.
Path Analysis (1 of 2)
Bivariate Correlations
blank X1 X2 Y1
X1 1.0 blank blank
X2 .40 1.0 blank
Y1 .50 .60 1.0
Path Analysis (2 of 2)
Correlations as Compound Paths
Corr X1, X2 =A
Corr X1 ,Y1 = B+AC
Corr X2 ,Y1 = C+AB
Structural Coefficients
.40 = A
.50 = B+AC
.60 = C+AB
Substituting A = .40
.50 = B+.40C
.60 = C+.40B
Solving for B and C

B = .310
C = .476
Statistical Software
• LISREL, LInear Structural RELations
• AMOS, Analysis of Moment Structures, is an added

module to SPSS
• CALIS is offered by SAS
• EQS, an abbreviation for equations
• Mplus is another software
Selection of a specific computer program should be

based on availability and user’s preference.

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Structural Equation Modeling and Path

Structural equation modeling (SEM), a procedure for

1. Representation of constructs as unobservable or

Absolute fit indices These indices measure the overall goodness-of-fit

Confirmatory factor analysis (CFA) A technique used to estimate the

Exogenous construct An exogenous construct is the latent, multi-item

Measurement model The first of two models estimated in SEM. It

Residuals In SEM, the residuals are the differences between the

Standardized residuals Used as a diagnostic measure of model fit,

Exogenous constructs are the latent, multi-item equivalent of

Models can be represented visually with a path diagram.

Dependence relationships are represented with single-headed

Correlational (covariance) relationships are represented with

In Figure 22.3, ξ1 represents the latent construct C1 , ξ2

Multiple fit indices should be used to assess a model’s

Δdf = df (M1)- df (M2)

When it comes to… Loadings Measurement

Degrees of freedom = 377

Degrees of freedom = 396

Dimensions of Service Quality blank Second-Order Loading Estimates T-values

Path analysis A special case of SEM with only single

The unique correlations among the three constructs can

The correlation of X1 and X2 is simply equal to A. The

X1 1.0 blank blank

X2 .40 1.0 blank

Y1 .50 .60 1.0

Solving for B and C

• LISREL, LInear Structural RELations

• AMOS, Analysis of Moment Structures, is an added

• CALIS is offered by SAS

• EQS, an abbreviation for equations

• Mplus is another software

Selection of a specific computer program should be

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