International Journal of

Research in
Marketing
ELSEVIER Intern. J. of Research in Marketing 13 (1996) 139-161

Applications of structural equation modeling in marketing and

consumer research: A review
Hans Baumgartner a,*, Christian Homburg b
a The Pennsyh,ania State Uniuersi~, 707-K BAB, Department of Marketing, Smeal College of Business, Unit'ersi~ Park, PA 16802, USA
b WHU Koblenz, D-56179 Vallendar, Germany

Received 15 September 1995; accepted 2 November 1995

Abstract

This paper reviews prior applications of structural equation modeling in four major marketing journals (the Journal of
Marketing, Journal of Marketing Research, International Journal of Research in Marketing, and the Journal of Consumer
Research) between 1977 and 1994. After documenting and characterizing the number of applications over time, we discuss
important methodological issues related to structural equation modeling and assess the quality of previous applications in
terms of three aspects: issues related to the initial specification of theoretical models of interest; issues related to data
screening prior to model estimation and testing; and issues related to the estimation and testing of theoretical models on
empirical data. On the basis of our findings, we identify problem areas and suggest avenues for improvement.

Ke?~vords: Structural equation modeling; Confirmatory factor analysis

1. Introduction marketing and consumer behavior researchers, and

Since the development of a general framework for
specifying structural equation models with latent
variables - referred to as the Jihreskog-Keesling-Wi-
ley model by Bentler (1980) - and the implementa-
tion of the statistical approach in the LISREL com-
puter program, latent variable modeling has become
a popular research tool in the social and behavioral
sciences. The monograph by Bagozzi (1980) on
Causal Modeling is generally credited with bringing
the technique to the attention of a wide audience of
* Corresponding author: Tel: (814) 863-3559; fax: (814) 865-
3015; e-mail: JXB14@psuvm.psu.edu.
articles in which structural equation modeling is used
for data analysis now appear routinely in most lead-
ing marketing and consumer behavior journals. The
popularity of the methodology is apparent from the
recent introduction of the eighth version of LISREL
(Jtireskog and Stirbom, 1993a - also available as a
module in SPSSX) and the emergence of a host of
computer programs that can be used as alternatives
to LISREL, such as COSAN (Fraser, 1980), EQS
(Bentler, 1989 - also implemented in BMDP), EZ-
PATH (Steiger, 1989), LINCS (Schoenberg, 1989),
the PROC CALIS procedure in SAS, and RAMONA
(Browne and Mels, 1992).
Although the potential of structural equation mod-
eling (henceforth referred to as SEM) for compre-

0167-8116/96/$15.00 Copyright © 1996 Elsevier Science B.V. All rights reserved

SSDI 0 1 6 7 - 8 1 1 6 ( 9 5 ) 0 0 0 3 8 - 0
140 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
hensive investigations of both measurement and the-
oretical issues is generally acknowledged (e.g., An-
derson and Gerbing, 1988; Bagozzi, 1984; Bagozzi
and Yi, 1988; Dillon, 1986; Steenkamp and van
Trijp, 1991) and even though the methodology has
developed a loyal following in some quarters and
continues to attract new users, some authors have
commented critically on the technique's value for
empirical research, These criticisms range from out-
right denial of the method's usefulness because of
the presumed implausibility of underlying assump-
tions (e.g., Freedman, 1987) to concerns about the
way in which SEM has been applied in practice
(e.g., Breckler, 1990; Biddle and Marlin, 1987; Cliff,
1983; Fornell, 1983; Martin, 1987). In our opinion,
the methodology has much to offer to the empirical
researcher, but there are many pitfalls that can make
SEM a dangerous tool in the hands of inexperienced
users. The purpose of this paper is to critically
evaluate previous empirical applications of SEM in
four leading marketing and consumer behavior jour-
nals (the Journal of Marketing, Journal of Marketing
Research, International Journal of Research in Mar-
keting, and the Journal of Consumer Research) and
to provide guidance to future users on how to em-
ploy the methodology more appropriately.
Specifically, our review has the following objec-
tives. First, we want to document the number of
applications of SEM over the years and classify
these applications in terms of relevant criteria such
as the purpose for which the methodology is used
(e.g., investigations of measurement issues, tests of
theoretical relationships). To our knowledge, no
comprehensive survey of marketing applications has
been reported in the literature, and little is known
about the use of LISREL and related programs in
actual research. Second, we seek to evaluate the
quality of applications of SEM by assessing their
conformance with formal statistical assumptions re-
quired for the valid use of these techniques, their
adherence to guidelines derived empirically from
simulation studies, and their reliance on rules of
thumb proposed by expert practitioners. Initial appli-
cations of methodologies, particularly if they are as
complex as SEM, are prone to misuse, and an in-
depth analysis of a critical mass of empirical studies
should point to problem areas and suggest avenues
for improvement.
2. Previous applications of SEM
We selected the Journal of Marketing, Journal of
Marketing Research, International Journal of Re-
search in Marketing, and the Journal of Consumer
Research as the journals most representative of re-
search in the fields of marketing and consumer be-
havior. All issues between 1975 and 1994 were
searched for empirical applications of SEM. Theoret-
ical papers dealing with issues related to SEM and
papers in which only simulated data were analyzed
or actual data were analyzed for illustrative purposes
only were not considered. Similarly, conventional
exploratory factor analysis models, path analysis and
other structural models estimated by regression
methods (e.g., models estimated by two-stage least
squares), nonlinear structural models, partial least
squares (PLS) models (cf. Fornell and Bookstein,
1982), and ordinal and limited observed variable
models (e.g., those that can be estimated with the
LISCOMP program of Muth6n (1987)) were ex-
cluded from the sample. Essentially, our data base of
applications of SEM includes confirmatory measure-
ment models, single-indicator structural models pro-
vided they were estimated by a program normally
used for latent variable modeling, and integrated
measurement/latent variable models.
In total, we found 149 applications that satisfied
our selection criteria, i Fig. 1 graphs the number of
applications between 1977 (the first year an applica-
tion was found) and 1994, both overall and by
journal. It is apparent that the use of SEM in the four
journals has increased fairly steadily over the years.
When the number of applications (overall and sepa-
rately for each journal) is regressed on the linear and
quadratic effects of time (plus a dummy variable for
1982 in the analysis for the Journal of Marketing
Research and in the overall analysis to correct for the
large number of applications found in the November
issue of this journal due to a special issue devoted to
SEM), only the linear trend of time and the dummy
variable are significant (the only exception being a
significantly positive quadratic effect for the Journal
of Marketing), indicating that in general the use of
i A listing of the 149 applicationsincludedin the meta-analysis
may be obtainedby contactingthe first author.
 H, Baumgartner, C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161
number of
applications
20
18
16
14
12
10
8 Structural equation models can be specified to
6
4
2 lished applications of SEM are factor-analytic mea-
0 time
77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94
Fig. 1. Applications of structural equation modeling over time.
SEM has neither accelerated nor decelerated over the
years. Overall, the Journal of Marketing, Journal of
Marketing Research, International Journal of Re-
search in Marketing, and the Journal of Consumer
Research accounted for 28, 42, 3, and 28 percent of
the total number of applications, respectively.
SEM can be regarded as a methodological innova-
tion, and the question arises how this innovation has
developed over time. To investigate this issue, the
Bass (1969) diffusion model was fit to the data. The
Bass model is applicable to non-replacement sales
only, which in the present case means that it models
only initial applications of the technique by a given
author. When there are multiple authors and at least
one of the authors has not used the method previ-
ously, it is not obvious whether the paper should be
regarded as an initial application since knowledge of
who conducted the analysis is unavailable. We used
the conservative criterion that if at least one of the
authors was a first-time user, the paper was included
in the sample. A total of 128 papers were thus
classified as initial applications. In fitting the Bass
model to our data, we regressed the number of
first-time applications per year on the number of
cumulative applications up to the previous year, the
square of the latter term, and a dummy variable for
the special issue in 1982. The resulting regression
141
model fit the data well, accounting for 78 percent of
the variance in the dependent variable, and all three
predictors were statistically significant (t-values >
11.891, with the coefficient of the quadratic term
being negative, as expected). The coefficient of inno-
vation ( p ) was 0.005 and the coefficient of imitation
(q) was 0.207, and since q is substantially greater
than p the introduction of SEM may be considered a
successful innovation (Bass, 1969).
investigate measurement issues, to examine struc-
tural relationships among sets of variables, or to
accomplish both purposes simultaneously. Most pub-
surement studies (39 percent) and integrated investi-
gations of both the measurement structure underlying
a set of observed variables and the structural rela-
tions among the latent variables (42 percent). In
some cases SEM is also used for examining the
relationships among variables which are all mea-
sured by single indicators (15 percent), and in five
instances multiple uses of SEM were reported (e.g.,
separate analyses of measurement and structural
models were performed). 2
The vast majority of published studies have been
conducted with cross-sectional data (93 percent). In
one instance the analysis was performed on true
longitudinal data covering many time periods, and in
nine cases the authors used panel data, where obser-
vations at two or more points in time were available
for each member of the sample. The almost exclu-
sive reliance on cross-sectional data to investigate
structural relationships among constructs (89 percent
when measurement studies are excluded from the
sample) and the well-known problems of inferring
causation from cross-sectional data (e.g., Cliff, 1983;
Biddle and Marlin, 1987) suggest that special care be
exercised in causally interpreting results derived from
(cross-sectional) structural equation models. In fact,
it might be advantageous to avoid the term causal
modeling altogether and instead talk about SEM, as
is done in this paper.
2 Separate analysis of measurement and structural models does
not refer to the two-step approach of Anderson and Gerbing
(1988). Rather, authors sometimes perform a factor analysis on
the set of items available and then combine variables into compos-
ites, which are analyzed as single-indicator constructs.
142 H. Baumgartner, C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161
As a final characterization of previous applica-
tions of SEM, our analysis shows that 85 percent of
all authors used LISREL to perform the analysis. In
six instances the data were analyzed with EQS, and
in 17 cases another program was used or the author(s)
did not specifically mention which program was
used. The data indicate that LISREL has enjoyed a
considerable first-mover advantage, and it will be
interesting to see whether any of the newer programs
will be able to challenge the hegemony of LISREL
and become a serious competitor in the future.
3. Methodological issues in the application of SEM
In discussing methodological aspects relating to
SEM and in assessing the quality of published appli-
cations, we will consider the following three broad
sets of issues (cf. Bagozzi and Baumgartner, 1994):
(1) issues related to the initial specification of theo-
retical models of interest; (2) issues related to data
screening prior to model estimation and testing; and
(3) issues related to the estimation and testing of
theoretical models on empirical data. In contrast to
the previous section, where the focus was on track-
ing the number of articles employing SEM over
time, the unit of analysis in this section is a given
model. In many papers only a single model is con-
sidered. Even if multiple (mostly nested) models are
compared using a single sample, but the author(s)
present(s) one model that best represents the data,
only this final model is analyzed. Thus, in most
cases using the article or the model as the unit of
analysis leads to the same result. In some papers,
however, the same model is estimated on multiple
samples (e.g., the model is cross-validated with dif-
ferent respondents), different models are estimated
on the same sample (e.g., separate measurement
models are specified for different constructs or sepa-
rate measurement and structural models are investi-
gated), or different models are estimated on different
samples (e.g., different model specifications are ex-
amined using different respondents). In the first case,
the data were averaged across replications before
including the application in the analysis. In the other
two cases, each distinct model was used separately in
the analysis, so that a single paper might contribute
several data points. The sample size for most analy-
ses in this section is 184, although in some cases it
might be slightly smaller because of missing values.
3.1. Issues related to the initial specification o f
theoretical models o f interest
Model specification. To establish a common ter-
minology for the discussion that follows, we will
briefly review some specification issues. Using the
LISREL formulation, a full structural equation model
can be stated as follows (cf. Bollen, 1989):
(1)
y = AYrl + , , (2)
x=A~+8. (3)
Eq. (1) is called the latent variable (or structural)
model and expresses the hypothesized relationships
among the constructs in one's theory. The m X 1
vector ~7 contains the latent endogenous constructs
and the n × 1 vector ~ consists of the latent exoge-
nous constructs. The coefficient matrix B shows the
effects of endogenous constructs on each other, and
the coefficient matrix F signifies the effects of
exogenous on endogenous constructs. The vector of
disturbances ~" represents errors in equations. If la-
tent variables are specified to have simultaneous
effects on each other (so that the B matrix has
nonzero elements both above and below the diago-
nal) a n d / o r if errors in equations are allowed to be
correlated, the model is called nonrecursive. If B is
subdiagonal and the ~i are uncorrelated, the model is
said to be recursive. Special care is required with
nonrecursive models because of such issues as model
identification, the stability of reciprocal effects, and
the interpretation of measures of variation accounted
for in endogenous constructs (cf. Schaubroeck, 1990;
Teel et al., 1986).
Eqs. (2) and (3) are factor-analytic measurement
models which tie the constructs to observable indica-
tors. The p X 1 vector y contains the measures of
the endogenous constructs, and the q X 1 vector x
consists of the measures of the exogenous indicators.
The coefficient matrices A y and A ~ show how y
relates to r/ and x relates to ~, respectively. The
vectors of disturbances e and 8 represent errors in
variables (or measurement error). Generally (but not
always) the measurement model possesses simple
structure such that each observed variable is related
 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
to a single latent variable. Models with simple struc-
ture and no correlated measurement errors represent
unidimensional construct measurement, which is fre-
quently considered to be a highly desirable character-
istic of measurement (Anderson and Gerbing, 1988;
Gerbing and Anderson, 1988; Hattie, 1985).
A total of 73 models in our sample were full
structural equation models consisting of Eqs. (1)
through (3). 3 In 81 cases, SEM was used solely for
investigating the measurement structure underlying a
set of observed variables. This submodel, which
corresponds to a confirmatory measurement model,
is given by either Eq. (2) or Eq. (3). Sometimes,
SEM is also applied to examinations of the structural
relations among constructs that are all measured by
single indicators. The necessary specification is ob-
tained by ignoring unreliability of measurement and
setting A ~' and A x to be equal to identity matrices,
or by assuming reliability to be known and fixing the
factor loadings or error variances accordingly. This
was done in 30 cases. In the sequel we will refer to
confirmatory measurement models, single-indicator
structural models, and integrated measurement/latent
variable models as models of type I, II, and III,
respectively. 4
Measurement model specification. One important
consideration in planning a study is how many ob-
served variables should be used to measure each
latent variable and how the various indicators should
be related to each construct. It is generally accepted
that each construct should be measured by multiple
items, but how many items should be used is less
clear. On the one hand, a sufficient number of
indicators per factor has to be available for a model
to be identified, and for estimation problems such as
nonconvergence and improper solutions to be mini-
mized it is advantageous to have many indicators
3 Included m this category are several second-order factor
models, which are measurement models from a substantive per-
spective but which are specified as integrated measurement/
structural models for estimation purposes.
4 All three types of models can be specified as single-sample or
multi-sample models. If the results of both the single-sample and
multi-sample analyses were reported in the paper, the single-sam-
ple data were used and averaged before including the application
in our sample. In seven cases (three type II models and four type
III models) only the results of the multi-sample analysis were
reported so that these data had to be used in the analysis.
143
(e.g., Anderson and Gerbing, 1984). Besides these
statistical considerations, a greater number of ob-
served measures is more likely to tap all facets of the
construct of interest. On the other hand, the greater
the number of indicators per factor, the more diffi-
cult it will probably be to parsimoniously represent
the measurement structure underlying a set of ob-
served variables and to find a model that fits the data
well.
Bagozzi and Heatherton (1994) have recently sug-
gested an approach for representing personality con-
structs that seems applicable to the modeling of
measurement structures in general. They distinguish
four different levels of abstraction in modeling per-
sonality constructs, but in the present context a
differentiation into three levels seems sufficient. In
the total aggregation model, a single composite is
formed by combining all the measures of a given
construct. This approach results in a model that is
formally identical to one in which only a single
indicator is available, but in general a composite
single indicator should be more reliable than a true
single-item measure. In fact, it is possible to com-
pute a measure of reliability when a composite of
items is available (e.g., coefficient a), and this
estimated reliability can be incorporated into the
analysis by fixing the error variance of the indicator
to (1 - reliability) times the variance of the indica-
tor. This method has the advantage that the specifica-
tion of the model is quite simple and that, compared
to the true single-indicator case, unreliability of mea-
surement can be taken into account in a limited way.
However, a major disadvantage is that the quality of
construct measurement is not investigated explicitly
(e.g., no assessment of unidimensionality is pro-
vided). In the partial aggregation and partial disag-
gregation models, subsets of items are combined into
several composites and these composites are treated
as multiple indicators of a given factor. This method
takes into account unreliability more explicitly and
allows some assessment of unidimensionality while
minimizing model complexity. However, combining
subsets of items into composites is usually somewhat
arbitrary. Finally, in the total disaggregation model
true single-item measures are used as multiple mea-
sures of an underlying latent variable. This method
allows the most explicit tests of the quality of con-
struct measurement, but unfortunately the analysis
144 H. Baumgarmer, C Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
becomes rather unwieldy if more than, say, five
indicators per factor are available and the model
contains even a moderately large number of con-
structs.
Table 1 presents relevant statistics regarding the
issue of construct measurement, both overall and by
type of model. Overall, the median number of ob-
served variables ( p + q) across all applications of
SEM has been 11 and the median number of con-
structs (m + n) has been five, resulting in a median
ratio of observed variables to constructs of about
two. For type II models, this ratio is identically equal
to one by definition. In pure measurement studies,
the median number of items per factor is about four,
whereas in integrated measurement/latent variable
models the median is around two. An unexpectedly
large number of models contained at least one sin-
gle-indicator 'latent' construct. By definition, all
constructs are indicated by a single measure in type
II models. However, even in type III models at least
one single-indicator construct was used in 71 percent
of all cases. For type I models this figure was much
lower (7 percen0, but this should not be too surpris-
ing given that these studies deal exclusively with
construct measurement.
Single-indicator constructs are unattractive be-
cause they ignore unreliability of measurement,
which is one of the problems SEM was specifically
designed to circumvent. As noted by Bentler and
Chou (1987), even having two measures per factor
might be problematic since three indicators per con-
struct are needed for a model to be identified unless
covariances among factors help to identify the sys-
tem of equations. Furthermore, as discussed by
Bentler and Bonett (1980) and Anderson and Gerb-
ing (1988), a model of independence at the structural
level serves a very useful function in model compari-
son tests, and such a model is in general not identi-
fied when fewer than three indicators are available.
These arguments suggest that authors should not use
single-indicator constructs or the minimum number
of indicators required for multi-item measurement of
constructs. Instead, we recommend that each latent
Note to Table 1:
a Table entries are medians (with the 25th and 75th percentile in parentheses), unless a percentage value is indicated.
variable be assessed with a minimum of three or four
indicators each (cf. Bollen, 1989).
As mentioned previously, not all single-item con-
structs are true single-item measures. Authors some-
times aggregate items into composites before enter-
ing them into the analysis. We also assessed the
number of actual items that went into each measure,
and the median of this variable (18) was substan-
tially higher than the median number of formal
indicators on which the degrees of freedom are based
(11). In fact, across all three models items were
combined into composites prior to entering them into
a structural equation model in 38 percent of the
cases. This practice was particularly prevalent in the
case of type II models, where 77 percent of applica-
tions followed this procedure. Sometimes, it will be
practically unavoidable to combine items into com-
posites if the number of indicators is even moder-
ately large (e.g., if one of the constructs is a person-
ality trait which is measured by a battery of, say, ten
items). In this case we recommend that a (confirma-
tory) factor analysis be conducted on the items to be
aggregated and that evidence on the dimensionality
of the construct be presented. If unidimensionality
holds, the items may be aggregated into a single
composite and measure unreliability can be taken
into account by fixing the error variance appropri-
ately, as described previously. If unidimensionality
does not hold, only indicators of a given subdimen-
sion of the construct should be combined and the
resulting composites can be treated as multiple indi-
cators of a higher-order construct, provided the inter-
correlations are high enough. Otherwise, separate
constructs will have to be specified. Unreliability can
be taken into account as in the single-composite
case.
In terms of further characteristics of construct
measurement practices, Table 1 shows that about 20
percent of all measurement models contain double-
loading items. Although not advisable in general
(Gerbing and Anderson, 1988), in about half of these
cases the procedure is justified because of a priori
specifications of method factors in multi-trait, multi-
 H. Baumgartner, C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161 145

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146 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
method analyses (cf. Bagozzi and Yi, 1991; Bagozzi
et al., 1991). About 5 percent of type I models and
19 percent of type III models contain correlated
measurement errors. We specifically coded whether
the authors provided a substantive justification for
this practice or whether they introduced correlated
errors simply because of goodness of fit considera-
tions. In about 50 percent of the cases no justifica-
tion was provided. We concur with Anderson and
Gerbing (1988) and Hattie (1985) that unidimen-
sional construct measurement is a desirable charac-
teristic of measurement models, and we recommend
that researchers use double-loading items and corre-
lated errors of measurement with caution and not
introduce them simply to boost the fit of the model.
Latent variable model specification. We coded
how many of the models were nonrecursive, either
because of correlated errors in equations or because
of entries both above and below the diagonal in the
B matrix. Approximately 23 percent of type II mod-
els and 26 percent of type III models contained
correlated errors in equations, of which 57 and 16
percent were substantively justified, respectively (see
Table 1). Correlated errors in equations are some-
times useful to model correlations among the en-
dogenous constructs that are due to unmeasured or
omitted variables, but as in the case of correlated
errors of measurement they should be used with
caution. About 7 percent of type II models and 8
percent of type III models allowed simultaneous
effects among the endogenous constructs, and overall
30 percent of type II models and 32 percent of type
III models were nonrecursive. Given the complexity
of nonrecursive models, these figures are fairly high
and, as shown below, the lack of proper regard for
issues such as model identification indicates a poten-
tial cause for concern. We recommend that if nonre-
cursive models are specified, relevant issues such as
model identification and the stability of reciprocal
effects be addressed explicitly in the paper.
Sample size. Another important issue that should
be considered prior to actually conducting the study
is whether the sample size is likely to be sufficient
given the number of parameters to be estimated. All
methods for the estimation and testing of structural
equation models are based on asymptotic theory and
the sample size has to be 'large' for the parameter
estimates and test statistics to be valid. Little theoret-
ical guidance as to what constitutes an adequate
sample size is available and the evidence from simu-
lation studies is sparse, but Bentler and Chou (1987)
provide the rule of thumb that under normal distribu-
tion theory the ratio of sample size to number of free
parameters should be at least 5:1 to get trustworthy
parameter estimates, and they further suggest that
these ratios should be higher (at least 10:l, say) to
obtain appropriate significance tests.
Table 1 shows that, overall, the median number of
parameters estimated was about 29, with the median
somewhat smaller for type II models. The median
sample size was 178, resulting in a median ratio of
sample size to number of free parameters of about
6:1. The median ratio is smallest for type III models
at about 5:1. A total of 41 (73) percent of all models
had ratios smaller than 5:1 (I0:1). In particular, the
figures are lowest for type III models. In fact, for 86
percent of these models the ratio of sample size to
number of parameters estimated was smaller than
10:1. These figures show that sample sizes are often
toward the lower end of, or even below, levels that
are considered acceptable to obtain trustworthy pa-
rameter estimates and valid tests of significance. It is
fairly easy to calculate beforehand what the likely
number of parameters to be estimated will be, and
necessary sample sizes should be determined accord-
ingly. As pointed out by Martin (1987), there may be
a trade-off between collecting data of high quality
and gathering data from a large sample of respon-
dents. A researcher's primary objective should be to
obtain high-quality data so that SEM may not be an
appropriate methodology in certain cases. In particu-
lar, even though SEM can in principle be used in
experimental designs (Bagozzi and Yi, 1989), small
sample sizes will often preclude application of the
technique in that context.
Model identification. Another important a priori
consideration is whether the model to be estimated is
identified. A model is said to be identified if it is
impossible for two distinct sets of parameter values
to yield the same population variance-covariance
matrix. A necessary condition for identification is
that the number of parameters to be estimated should
not exceed the number of distinct elements in the
variance-covariance matrix of the observed vari-
ables. This rule, which implies that the number of
degrees of freedom be nonnegative, is easy to check,
 H. Baumgarmer, C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161
but unfortunately it is not a sufficient condition for
identification. General, easy-to-follow procedures for
proving identification are unavailable except in spe-
cialized cases, and showing that a model is identified
may be nontrivial for certain kinds of models. In
particular, special care is required for models that are
not unidimensional a n d / o r nonrecursive.
We coded whether the issue of identification was
addressed in a given article. Table 1 shows that very
few authors mention that they checked whether a
model to be estimated was identified. It is possible
that identification was considered without explicitly
mentioning this fact, and in many cases computer
programs will give a warning message if a model
appears to be underidentified, so that identification
problems might be detected even if identification is
not proved theoretically. However, particularly when
it is not immediately clear that a model is identified,
it would be advisable to deal with identification
explicitly and to mention this fact in the paper. Our
own assessment of model identification in previous
applications of SEM suggests that the vast majority
of models are indeed identified theoretically. How-
ever, in at least two instances the target model was
probably not identified and in another paper one of
the comparison models was underidentified. It is thus
strongly recommended that in the future more atten-
tion be paid to the issue of identification. 5
Degree of freedom. As a final characterization of
previous applications of SEM, Table 1 shows that
the median number of degrees of freedom and thus
overidentifying restrictions is about 32. The median
is lowest for type II models at 11 and highest for
type III models at 49. In a surprisingly large propor-
tion of all cases degrees of freedom are reported
incorrectly (8 percent). The reason for this error is
that a correlation matrix is used as input to estima-
tion, at least one exogenous construct is measured by
a single indicator, the loading of the single indicator
on its 'construct' is constrained to one, and at the
same time the variance of the single-indicator con-
5 Even if a model is identified theoretically, there might be
empirical identification problems. This happens when the expres-
sion of a parameter in terms of observed variances and covari-
ances involves a denominator that is zero or close to zero (cf.
Kenny, 1979).
147
struct is assumed to be known and also fixed at
6
one. This results in inflated degrees of freedom and
exaggerated p-values for the overall goodness-of-fit
X 2 statistic. Fortunately, the error is generally small
in magnitude.
In most cases, it is possible to separate the mea-
surement model from the latent variable model and
to partition the total number of degrees of freedom
into degrees due to the particular specification of the
measurement model (essentially the degrees of free-
dom of a saturated structural model) and the degrees
of freedom derived from a particular structural model
formulation (the deviation of a model from a satu-
rated structural specification). Table 1 indicates that,
overall, most degrees of freedom derive from the
measurement model. In type I models deviations
from the saturated structural model are rare (i.e.,
cases where factor covariances are specified to be
fixed), and in type II models overidentifying restric-
tions can only be imposed on the structural model. In
type III models, where degrees of freedom may
come from both the measurement and latent variable
models, the median contribution of the measurement
model to the total number of degrees of freedom is
about 93 percent. Duncan (1975) and Forneil (1983)
have pointed out the dangers of interpreting a good
overall fit of a model as support for the validity of
one's theory. The figures on the percentage of overi-
dentifying restrictions that are generally derived from
the measurement model provide further evidence on
the folly of such arguments.
3.2. Issues related to data screening prior to model
estimation and testing
Probably one of the most common mistakes in
applying SEM is to pay little or no attention to the
raw data and to immediately compute a correlation
matrix and rush to model estimation and testing. The
danger inherent in this practice is that the correlation
matrix masks the multitude of factors that may call
into doubt the applicability of the chosen statistical
procedure.
6 In other words, the scale of a latent variable should be fixed
by setting either the loading of one reference indicator or the
factor variance equal to unity (but not both).
148 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
First, it is important to check that there are no
coding errors, that variables have been recoded ap-
propriately if necessary, and that missing values have
been dealt with properly (Kaplan, 1990). Second, it
is helpful to investigate possible distorting influences
introduced by the presence of a few influential out-
liers. Third, it is crucial to examine the approximate
normality of the data and to take corrective action if
this assumption is violated, since most estimation
methods assume that the data come from a multivari-
ate normal population. Finally, it is essential that an
appropriate measure of association be used as input
to model estimation and testing.
Recent discussions of SEM have placed increased
emphasis on such important issues as outlier detec-
tion and assessment of normality (see Bollen, 1989
for an excellent discussion). The necessary analyses
can now be conducted fairly easily with conventional
computer programs for SEM (e.g. EQS, PROC
CALLS in SAS) or specialized programs such as
PRELIS (J6reskog and S~Srbom, 1993b) and the LIS-
RES macro for SAS (Davis (1992), based on the
work of Bollen (1989), and Bollen and Arminger
(1991)). PRELIS is helpful for exploratory data
screening and for testing the univariate and multi-
variate normality of the observed variables. The
LISRES macro can be used to flag 'atypical' cases
and to perform outlier analysis for groups of obser-
vations, and it also reports univariate and multivari-
ate tests of normality based on the skewness and
kurtosis of the observed variables (see Bollen (1989),
for details). An assessment of the approximate nor-
mality of the data is important because model esti-
mation and testing are usually based on the validity
of this assumption, and lack of normality adversely
affects goodness-of-fit indices and standard errors.
There was little evidence in most of the papers
that the authors had shown particular concern for
data screening prior to model estimation and testing.
Due to space constraints data screening is probably
not described in most cases and the idea of outlier
detection in SEM is a relatively new one. However,
it is widely known that SEM generally requires the
assumption of multivariate normality, and we coded
whether assessment of normality was discussed ei-
ther qualitatively or quantitatively. Only in 8 percent
of all cases did authors indicate that they had checked
whether the data were at least approximately normal.
Alternative estimation techniques for which multi-
variate normality is not as crucial as for maximum
likelihood estimation (see discussion below) were
used very infrequently (5 percent), and in no instance
was their use motivated by the fact that the data were
not sufficiently normal. These results indicate that
not enough attention is being paid to the satisfaction
of assumptions that are necessary for the valid use of
the most commonly used estimation technique. We
recommend that in future research the requirement of
multivariate normality be taken more seriously and
that a summary measure describing the extent to
which the data are normally distributed be reported
as a matter of routine in the methods or results
section of the paper (e.g., the multivariate coefficient
of relative kurtosis; cf. Browne, 1982).
In addition to the issue of data screening, there is
also the question of which measure of association to
use in the analysis. Researchers often use correla-
tions rather than covariances as input to estimation,
and Cudeck (1989) has recently discussed this issue
in some detail. Since in most cases maximum likeli-
hood (as well as generalized least squares) fitting
functions are scale invariant and the resulting esti-
mates scale free (Bollen, 1989), this has no effect on
overall goodness of fit indices and parameter esti-
mates. However, standard errors may be inaccurate,
and Cudeck (1989) cautions against the use of corre-
lation matrices. Our survey of previous applications
of SEM shows that in many cases researchers do not
mention specifically which measure of association
they used as input to estimation. If the conservative
criterion is adopted that a correlation is used by
default, about 78 percent of applications have based
estimation on correlation matrices. Covariances were
specifically used in 21 percent of all cases and in a
few applications another measure of association was
employed. It is difficult to assess how frequently the
use of correlations has had detrimental effects on the
analysis. One case where correlations should not be
used is with multiple-group analyses. In seven in-
stances only the results of multiple-group analyses
were reported in the paper. In four of these cases no
mention was made of the fact that the analyses were
based on covariances, and it is possible that correla-
tions were used as input. We recommend that in
future research all analyses be conducted on covari-
ance matrices and that tests of significance for indi-
 H. Baumgartner, C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161
vidual parameters be reported from this analysis.
Standardized parameter estimates can be easily ob-
tained from the standardized solution in which either
the latent variables or both the latent and observed
variables have been standardized.
3.3. Issues related to the estimation and testing of
theoretical models on empirical data
Model estimation. A variety of estimation proce-
dures are available to obtain parameter estimates and
test statistics, but the majority of models (about 95
percent) are estimated using maximum likelihood
techniques (see Table 2). The reason for this prefer-
ence for maximum likelihood techniques seems to be
that it is the default method in most computer pack-
ages. Furthermore, given the lack of concern for the
validity of the normality assumption, authors proba-
bly do not see a need to consider alternative estima-
tion procedures. In principle, asymptotically distribu-
tion-free (ADF) methods (Browne, 1984) can be
used regardless of which distribution underlies the
observed variables, but in practice very large sample
sizes are required, and simulations have shown that
ADF techniques do not necessarily perform better
even when they might be expected to be more
appropriate theoretically (cf. Hu et al., 1992; Sharma
et al., 1989). Given the small sample sizes on which
correlations or covariances are generally based, ADF
techniques are probably not a practical alternative in
most situations.
Estimation problems. Sometimes estimation tech-
niques encounter difficulties in converging on a solu-
tion or converge on a locally optimal solution, and
even when a solution has been found it might be
improper in the sense that the estimated parameters
are impossible in the population (e.g., negative error
variances) or of little use in testing (e.g., very large
standard errors). Frequent causes of such problems
are poorly specified models, overfitting, outliers, bad
starting values, insufficiently operationalized con-
structs, and small sample sizes (Bentler and Chou,
1987).
Few instances of estimation problems were en-
countered in our review (see Table 2). With respect
to convergence problems, this is not too surprising
since nonconvergence would probably preclude pub-
lication of an article. One area where convergence
149
problems were sometimes mentioned was in the
context of multi-trait multi-method analysis. Im-
proper solutions in the form of negative error vari-
ances were found in 5 percent of all models (al-
though they were not always significant). Sometimes
the offending estimate was set to zero, and some-
times it was retained. It should be noted that esti-
mated model parameters are not always reported in
enough detail so that it is sometimes impossible to
tell whether improper solutions occurred or not. We
would recommend that authors at least mention that
there were no improper solutions if complete results
are not reported because of space constraints or other
reasons.
Assessment of overall model fit. The most popular
index for assessing the overall goodness of fit of a
model has been the X2 statistic, which tests the null
hypothesis that the estimated variance-covariance
matrix deviates from the sample variance-covari-
ance matrix only because of sampling error. In prac-
tice, the X 2 test is sometimes of limited usefulness
because it is not robust to violations of underlying
assumptions (particularly normality) and because it
is heavily influenced by sample size (Bentler, 1990).
The latter problem is particularly serious because on
the one hand large sample sizes are needed to obtain
valid tests, but on the other hand specified models
are probably never literally true and thus subject to
rejection in sufficiently large samples (cf. Cudeck
and Browne, 1983).
Because of these problems, many alternative fit
indices have been developed (for recent overviews
see Gerbing and Anderson, 1993; J/Sreskog, 1993;
Marsh et al., 1988; Mulaik et al., 1989; Tanaka,
1993). Some of these are stand-alone indices assess-
ing model fit in an absolute sense (e.g., the goodness
of fit index (GFI), adjusted goodness of fit index
(AGFI), and root mean square residual (RMR) re-
ported by earlier versions of LISREL) and others are
incremental fit indices comparing the target model to
the fit of a baseline model, among them the Bentler
and Bonett (1980) normed fit index (BBI) and the
Tucker and Lewis (1973) nonnormed fit index (TLI).
Most of the time the baseline model is one in which
all observed variables are assumed to be uncorre-
lated, although other baseline models are possible.
Recent work on goodness-of-fit assessment has
emphasized the idea of expressing model fit in terms
150 H. Baumgartner, C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161

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152 H. Baumgarmer. C. Homburg~Intern. J. of Research in Marketing 13 (1996) 139-161
of noncentrality (e.g., Bentler, 1990; McDonald and
Marsh, 1990; Steiger, 1990; Browne and Cudeck,
1993). This explicitly recognizes the fact that hy-
pothesized models are generally only approximately
true, provides a basis for population-based (rather
than sample-based) fit measures and associated con-
fidence intervals, and appears to mitigate the prob-
lem that the means of the sampling distributions of
many alternative fit measures are a function of sam-
ple size (with larger samples yielding larger fit in-
dices on average). Among the stand-alone fit indices
based on noncentrality are the McDonald (1989)
measure of centrality (MC) and the root mean squared
error of approximation (RMSEA) of Steiger (1989)
and Steiger (1990), which estimates how well the
fitted model approximates the population covariance
matrix per degree of freedom. Browne and Cudeck
(1993) suggest that a value of RMSEA below 0.05
indicates close fit and that values up to 0.08 are
reasonable, and they propose a test of close fit for
testing the hypothesis that RMSEA is smaller than
0.05. (In contrast, the conventional X2 statistic tests
the hypothesis that RMSEA = 0). Among the incre-
mental fit indices based on noncentrality are the
Bentler (1990) normed comparative fit index (CFI),
which in most cases equals the McDonald and Marsh
(1990) nonnormed relative noncentrality index, and
the Tucker-Lewis index (TLI). The most important
difference between CFI and TLI is that TLI (like
RMSEA) expresses fit per degree of freedom, thus
imposing a penalty for estimating less parsimonious
models. This may be important in comparing models
of different complexity.
Table 2 shows that most published articles using
SEM report at least one stand-alone fit index, and
slightly more than a third also rely on incremental fit
indices to assess the overall fit of the model. As
expected, by far the most commonly used fit index is
the X 2 test. Other common stand-alone indices are
GFI, AGFI, and RMR. Until recently these were the
ones automatically reported by LISREL, which seems
to explain their popularity. Incremental fit indices are
used less frequently, probably because, until re-
cently, one had to estimate a separate baseline model
and calculate the index by hand. BBI has been the
most popular incremental fit index, but CFI has
recently gained in popularity.
The latest versions of the most common computer
programs for SEM (e.g., LISREL 8, the PROC
CALLS procedure in SAS) report a large number of
different fit indices so that authors will have to make
a decision about which ones to use in model evalua-
tion. Bollen and Long (1993) recommend that re-
searchers should not rely solely on the X 2 statistic
but report multiple fit indices representing different
types of measures (i.e., other stand-alone indices
besides the X 2 statistic, such as RMSEA, and incre-
mental fit indices such as CFI and TLI; see Tanaka,
1993, for a discussion of different dimensions along
which fit indices can be classified). Table 2 indicates
that researchers base model evaluation too much on
the X 2 test, and we suggest that alternative fit
indices (particularly those based on noncentrality) be
used more widely in future applications.
Table 2 also reports summary statistics on the
distribution of goodness-of-fit measures across previ-
ous applications of SEM. The X: statistic by itself is
not a meaningful statistic without taking into account
the degrees of freedom of a model so that the ratio of
X 2 to degrees of freedom ( x 2 / d f ) is reported. If
either GFI or AGFI was provided in the paper, it is
generally possible to calculate the other index, and
this was done to increase the sample size. In the case
of RMR, only models in which the RMR was based
on a correlation matrix are included in the sample.
Summary statistics are also reported for MC and
RMSEA since they might become more widespread
in the future. Besides the three incremental fit in-
dices that were encountered with some degree of
frequency (BBI, TLI, and CFI), Table 2 also reports
the relevant figures for the relative fit index (RFI) or
p~ and the incremental fit index (IFI) or /I 2, both of
which are due to Bollen (1989). Provided that at
least one incremental fit index was reported in the
paper, it is possible to calculate the X 2 of the
baseline model and thus any other incremental fit
index. Whenever possible, this was done to increase
the sample size on which the summary statistics are
based. Only models for which the baseline model
was the one of complete independence among all
measures were used. The effective sample sizes for
the norms on x 2 / d f , GFI, AGFI, RMR, MC, RM-
SEA, BBI, TLI, CFI, RFI, and IFI are provided in
brackets in Table 2.
The medians for x 2 / d f , GFI, AGFI, RMR, MC,
and RMSEA were 1.62, 0.95, 0.91, 0.05, 0.95, and
 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
0.06, respectively. In 54 percent of all cases the
hypothesized model was inconsistent with the data
based on a X 2 goodness-of-fit test at a critical value
of 0.05. The corresponding figures for type I, II, and
III models were 61, 21, and 60 percent. Thus, type II
models tend to achieve better fits than the other two
types of models. The reason for this seems to be that
these models are generally less complex than type I
and type III models. The medians for BBI, TLI, CFI,
RFI, and IFI were 0.91, 0.93, 0.95, 0.85, and 0.95.
The relative magnitude of the various incremental fit
indices is consistent with theoretical expectations (cf.
Bollen, 1989). The percentage of applications in
which the GFI, AGFI, BBI, TLI, and CFI were
smaller than 0.9 (the value presumably indicating
acceptable fit for these indices) was 24, 48, 44, 32,
and 21, respectively. Although the figures for the
incremental fit indices should be interpreted with
caution because of the relatively small number of
applications on which they are based, it is apparent
that the 0.9 value is a reference point that many
models do not achieve. For RMSEA, 58 percent of
all models had values above 0.05, and 23 percent
had values exceeding 0.08. Thus, a sizable propor-
tion of published models falls short of what Browne
and Cudeck (1993) call a reasonable fit.
In an effort to ascertain determinants of the over-
all goodness of fit of a model, X 2/df, GFI, AGFI,
MC, RMSEA, BBI, TLI, CFI, RFI, and IFI were
correlated with the variables listed in Table 1 and on
the bottom of Table 2. 7 Two important sets of
results emerged from this analysis. First, X 2/df was
fairly strongly correlated with sample size ( r = 0.47).
This confirms the problematic dependence of the X 2
test on sample size. In addition, AGFI ( r = 0.22),
BBI ( r = 0.31), and RFI ( r = 0.35) had a significant
7 The possible determinants of the overall goodness-of-fit of a
model were submitted to a principal components analysis to
identify clusters of variables that behave similarly across samples
and to aid in the interpretation of the effect of a given variable.
This analysis showed, for example, that number of observed
variables, number of latent variables, number of parameters esti-
mated, degrees of freedom, contribution of the measurement
model to the overall number of degrees of freedom loaded on a
single factor which reflects the complexity of a model.
153
and nonnegligible relationship with sample size, cor-
roborating earlier theoretical discussions and simula-
tion evidence (with the exception of GFI) that the
means of the sampling distributions of these indices
are a positive function of sample size (cf. Bollen,
1989; Marsh et al., 1988; McDonald and Marsh,
1990). Second, there were sizable (negative) effects
of model complexity (in terms of number of ob-
served variables, number of observed variables per
factor, number of parameters estimated, degrees of
freedom, and contribution of the measurement model
to the overall number of degrees of freedom) on GFI
and MC ( r ' s > 10.51), BBI ( r ' s > 10.41), AGFI ( r ' s >
10.31), and CFI, RFI, and IFI ( r ' s > 10.21). In contrast,
x2/df, RMSEA, and TLI were unaffected by model
complexity. These results indicate that model com-
plexity is an important factor contributing to the
contingent nature of goodness-of-fit assessments, and
they suggest that general rules of thumb (e.g., that
GFI or BBI be greater than 0.9) may be misleading
because they ignore such contingencies. On the posi-
tive side, x 2 / d f , RMSEA, and TLI seem to be
effective in controlling for model complexity by
assessing fit per degree of freedom.
Assessment of the measurement model. The qual-
ity of construct measurement is ascertained by look-
ing at the sign, size, and significance of estimated
factor Ioadings and the magnitude of measurement
error. Various indices of reliability can be computed
to summarize how well the constructs are measured
by their indicators, either at the individual item level
(individual-item reliability) or for all measures of a
given construct jointly (composite reliability, average
variance extracted; cf. Alwin and Jackson, 1979;
Bagozzi and Yi, 1988; Fornell and Larcker, 1981;
Steenkamp and van Trijp, 1991).
We initially attempted to compute summary mea-
sures of measurement reliability for a given model,
but this proved too difficult because of the diversity
of approaches used by different authors to assess the
quality of construct measurement. This makes com-
parisons across studies almost impossible. For exam-
ple, in some cases reliability is computed based on
estimated model parameters. In other cases, coeffi-
cient ot is reported for composites of items that are
used either as single-indicator 'constructs' or as
multi-item individual indicators. Eventually, we only
coded whether authors showed any concern for mea-
154 H. Baumgarmer. C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
sure reliability by reporting at least one of the vari-
ous possible reliability indices.
Overall, 78 percent of all applications mentioned
some form of reliability assessment (see Table 2).
The figures for type I, type II, and type III models
were 78, 70, and 82 percent, respectively. The prac-
tice of examining measure reliability is least com-
mon in type II models, which is not surprising since
construct measurement is not modeled explicitly in
this case and since reliability cannot be assessed if
true single-item measures are used in the analysis.
Although reliability assessment is more common in
type I and type III models, there is room for im-
provement even in these cases.
We recommend that in the future authors report at
least one measure of construct reliability which is
based on estimated model parameters (e.g., compos-
ite reliability, average variance extracted). Coeffi-
cient ct is generally an inferior measure of reliability
since in most practical cases it is only a lower bound
on reliability. In particular, if coefficient a is en-
tered into the analysis as an external estimate of
reliability, it will usually exaggerate unreliability of
measurement. Furthermore, in cases where compos-
ites of measures are used as individual items, authors
should report supplementary evidence on unidimen-
sionality based on factor analyses. Coefficient a is
insufficient for this purpose since a scale may not be
unidimensional even if it has high reliability (Gerb-
ing and Anderson, 1988).
Assessment of the latent variable model. In mod-
els of type II and III, the latent variable model
represents the hypotheses of interest. The hypotheses
are tested by examining the sign, size, and statistical
significance of the structural coefficients. In addi-
tion, it is useful to report the percentage of variation
in the endogenous constructs accounted for by the
exogenous constructs (i.e., the R 2 for each structural
equation). If the model is nonrecursive, these figures
have to be interpreted with caution (cf. Teel et al.,
1986).
Several authors (e.g., Fornell, 1983) have stressed
the importance of distinguishing between variance fit
(explained variance in the endogenous variables) and
covariance fit (overall goodness of fit statistics test-
ing the applicability of the overidentifying restric-
tions imposed on the model, such as the X 2 test). It
seems that authors are sometimes not completely
clear on the difference between the two and that the
emphasis on covariance fit detracts from a proper
concern for variance fit. We specifically coded
whether papers reported evidence on variation ac-
counted for, at least for some of the endogenous
variables. For type II models this was the case in
only 30 percent of all cases, and for type III models
the figure was 45 percent. Although we do not have
any hard evidence on why these figures are so low,
we suspect that one of the reasons might be that
since the goodness of fit of the overall model was
assessed by means of X 2 and related statistics,
authors see no need to report what in regression
terminology would be called the goodness of fit of
each structural equation (i.e., R2). Since covariance
fit says nothing about variance fit - a model might
fit well but not explain significant amounts of varia-
tion in endogenous variables, or conversely fit poorly
and explain a large portion of the variance in en-
dogenous variables (Fornell, 1983) - it is recom-
mended that authors report the R 2 for each structural
equation. We hasten to add, however, that the amount
of variance explained by a structural equation is only
one consideration in evaluating a model and that the
meaningfulness of individual structural parameters is
probably of greater importance in most cases.
Model modification. It is quite unlikely that the
model that is initially specified as a plausible repre-
sentation of the data (with all items that were col-
lected to measure a given construct included in the
analysis and all model parameters estimated based
purely on a priori considerations) will be the one that
is eventually presented as the most parsimonious
summary of the data. There is, however, consider-
able variation across studies in how readily this fact
is acknowledged. Some authors describe in great
detail how the measurement model was purified and
what modifications were made to the structural model
to obtain acceptable goodness-of-fit statistics. Other
authors present only the final model and provide no
evidence on the process that led to it. It is thus
difficult to evaluate how much the initial model was
modified.
Various tools are available to locate model mis-
specifications, including modification indices and
residual analysis. Using modification indices, which
are reported routinely in the output of LISREL and
other programs, researchers can conduct specifica-
 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
tion searches almost automatically and possibly im-
prove the fit of a model to acceptable levels. Unfor-
tunately, simulation work by MacCallum (1986) and
Homburg and Dobratz (1992) indicates that specifi-
cation searches (particularly modifications of the la-
tent variable model) can go astray and fail to un-
cover the correct underlying model, particularly when
the original model has many specification errors,
when the sample size is small, and when the search
is guided solely by a desire to improve the overall fit
of the model. Since models arrived at through speci-
fication searches are rarely cross-validated, it is quite
possible that authors are capitalizing on chance when
respecifying models that have been found to be
lacking in fit. We recommend that model modifica-
tions be strongly guided by substantive considera-
tions and that constraints having large modification
indices be relaxed only if the resulting parameter
change is theoretically and practically meaningful.
The expected parameter change statistic available in
some computer programs should prove helpful in
this regard (Kaplan, 1990).
As argued by Cudeck and Browne (1983), SEM is
best conducted in the form of comparisons among
different plausible models that are nested in each
other and can be justified theoretically. At the struc-
tural level, the decision-tree framework suggested by
Anderson and Gerbing (1988) may be quite helpful
in this regard. Besides avoiding the dangers of speci-
fication searches which are not guided by theory, the
comparison of different models should also guard
against the frequently encountered but mistaken no-
tion that a theoretical model which achieves an
acceptable (covariance) fit has somehow been shown
to be the most plausible representation of the data.
Such thinking ignores the very real possibility of
model equivalence (i.e., two different parametric
structures with possibly very different theoretical
implications summarize the data equally well as
shown by equivalent X 2 values; cf. Stelzl (1986),
and Luijben (1991)) or near model equivalence (i.e.,
two different models are not formally equivalent but
more or less equally consistent with the data; cf.
Breckler (1990)).
As shown in Table 2, in 54 percent of all applica-
tions authors acknowledged some form of specifica-
tion search. These included deletion of items because
of low item-total correlations or bad performance in
155
exploratory or confirmatory factor analyses, specifi-
cations on the basis of preliminary explorations of
the data (e.g. through exploratory factor analysis),
respecifications of the measurement model on the
basis of modification indices or residual analysis
(e.g., introduction of correlated measurement errors),
addition of structural paths or correlated errors in
equations because some overidentifying restrictions
were not met, and pruning of the model of nonsignif-
icant parameters on the basis of t-values or X 2
difference tests. Model comparisons were performed
in 31 percent of all cases, and cross-validation -
defined broadly as the estimation of the same model
on at least two sets of data, with no requirement that
the two models be compared explicitly using multi-
sample analysis procedures or the cross-validation
approaches suggested by Browne and Cudeck (1989),
Cudeck and Browne (1983), and Homburg (1991) -
was conducted in only 21 percent of the cases. The
low incidence of cross-validation coupled with the
presumably frequent practice of searching for an
acceptable model specification (we would venture to
guess that most models reported in the literature
have been modified at least to some extent) imply
that the replicability of findings obtained through
SEM may often be doubtful (cf. Steiger, 1990).
Furthermore, the figure on how often a target model
is compared to alternative specifications suggests
that the benefits of model comparisons have not been
realized by many authors. We recommend that in the
future authors be frank in their reporting of how they
arrived at their final model and that a strategy of
model comparison be adopted whenever possible.
The expected cross-validation index of Browne and
Cudeck (1989), Browne and Cudeck (1993) and
related model selection criteria may prove helpful in
this regard.
Residual analysis. Traditionally, residual analysis
in the context of SEM has referred to an examination
of the difference between the observed (sample)
variance-covariance matrix and the estimated vari-
ance-covariance matrix implied by a particular
model specification. This is in contrast to regression
analysis, where residual analysis refers to an exami-
nation of the difference between observed and pre-
dicted values of a dependent variable. Recent work
by Bollen and Arminger (1991) shows that model-
based residual analysis (of both estimated errors in
156 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161

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158 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
variables and errors in equations) may be useful in
the detection of outliers and influential cases and in
the assessment of assumptions such as normality.
The LISRES macro discussed previously (Davis,
1992) implements the Bollen and Arminger (1991)
ideas and allows researchers to conduct sensitivity
analysis on their model. This work is too recent to be
reflected in previous applications of SEM, but we
recommend that researchers give serious considera-
tion to using these tools in their work.
4. Discussion
Structural equation modeling has become an es-
tablished component of the methodological reper-
toire of marketing and consumer behavior re-
searchers. There are at least two features that make
SEM an attractive candidate for purposes of data
analysis. First, SEM allows the researcher to take
into account explicitly the inherent fallibility of be-
havioral science data and to assess and correct for
measure unreliability provided multiple indicators of
each construct are available. Second, SEM makes it
possible to investigate in a straightforward fashion
comprehensive theoretical frameworks in which the
effects of constructs are propagated across multiple
layers of variables via direct, indirect, or bi-direc-
tional paths of influence. These advantages, coupled
with the development of ever more sophisticated, yet
surprisingly user-friendly computer programs to esti-
mate and test such models, make it rather likely that
SEM will enjoy widespread use in future research.
As with any other research tool that offers power-
ful data analysis capabilities, however, SEM has to
be used prudently if researchers want to take full
advantage of its potential. Based on prior method-
ological discussions, our own work in the area, and
particularly the present review of previous applica-
tions of SEM in the Journal of Marketing, Journal of
Marketing Research, International Journal of Re-
search in Marketing, and the Journal of Consumer
Research, we would offer the following general
guidelines to future users of these techniques. First,
careful thought should be given to model specifica-
tion issues before empirical data are ever collected.
Experience indicates that structural equation models
are most profitably specified for relatively well-de-
fined theoretical frameworks of moderate complexity
in which each construct is measured by a fairly
compact set of indicators. SEM is usually not the
most useful technique in the early, exploratory stages
of research when the measurement structure underly-
ing a set of items is not well established and theoreti-
cal guidance concerning possible patterns of relation-
ships among constructs is lacking. Furthermore, al-
though fairly complex models are specified quite
easily, it is generally advisable to refrain from for-
mulating models that are too grandiose because the
analysis easily degenerates into an exercise in data
mining, resulting in models with suspect statistical
properties and questionable substantive implications
(cf. Bentler and Chou, 1987).
Second, once the data are available, they should
be screened carefully before a moment matrix is
computed and particular models of interest are inves-
tigated. We specifically recommend that researchers
make greater use of the diagnostic tools that are
beginning to appear in the literature (e.g., outlier
analysis as implemented in the LISRES macro) and
that some evidence of approximate normality based
on skewness and kurtosis be presented in the paper
(as reported in PRELIS, EQS, etc.). As pointed out
by Martin (1987), among others, the powerful capa-
bilities of SEM derive partly from highly restrictive
simplifying assumptions, and researchers have to
make sure that these assumptions are not too grossly
violated.
Third, with regard to model estimation and test-
ing, the consistency of a given model specification
with empirical data should be assessed in terms of a
variety of global and local fit measures, alternative
theoretical models should be considered whenever
possible, and research results should be cross-vali-
dated, particularly when the original model formula-
tion was revised considerably through specification
searches. Steiger (1990) argues this point most force-
fully by stating, "Perhaps a moratorium should be
declared on publication of causal modeling articles
using any PMM [post hoc model modification] pro-
cedure.., unless such articles provide evidence of
cross-validation" (p. 176). Although the replicability
of findings is an important concern of scientific
research in general, the ease with which data-driven
model modifications are conducted using modifica-
 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
tion indices and related statistics suggests that spe-
cial attention be paid to this issue in future applica-
tions of SEM. Table 3 summarizes the major prob-
lem areas identified in our review of previous appli-
cations of SEM and offers specific recommendations
about how to improve the practice of latent variable
modeling.
As this review of previous applications of SEM in
four major marketing and consumer behavior jour-
nals has shown, LISREL and related techniques have
already had a substantial impact on empirical re-
search in our discipline. The question arises whether
the widespread use of SEM has had a positive
influence on research from a substantive
perspective. 8 Several authors have voiced critical
comments in this regard. For example, Martin (1987)
suggests that the complexities of SEM may place
undue emphasis on methodological aspects and di-
vert attention from sound theorizing. Particularly in
earlier applications of SEM, authors often felt com-
pelled to explain the basics of the new technique in
great detail (usually with the help of most letters of
the Greek alphabet) and given the space constraints
in journals, the result probably was a decreased
concern with theory development. It is hoped that as
familiarity with the methodology increases, re-
searchers will be able to present technical matters
more succinctly and accord greater attention to sub-
stantive issues.
Another problem has been the careless use of
causal terminology (Biddle and Marlin, 1987; Breck-
ler, 1990; Cliff, 1983; Martin, 1987). Since SEM is
almost always based on correlational data and since
the vast majority of studies use data collected in a
single wave, causal conclusions are usually unwar-
ranted, and it is probably best not to use the term
causal modeling. A related problem occurs in con-
nection with the interpretation of a model that has
been found to fit the data. Because of such issues as
model equivalence or near model equivalence, a
good fit should not be interpreted to imply that the
proposed model is the 'true' representation of the
structure underlying the data (Breckler, 1990). The
s W e thank an a n o n y m o u s reviewer for suggesting a discussion
o f these issues.
159
only legitimate conclusion is that the proposed model
is one possible plausible account of the data. By
grounding hypothesized patterns of effects strongly
in extant theoretical frameworks, by using panel
designs in which data from the same subjects are
collected at multiple points in time so that certain
patterns of influence can be ruled out, and by com-
paring the proposed model to various competing
specifications, the researcher can take steps to safe-
guard against likely alternative explanations.
A final issue concerns the notion of SEM being a
confirmatory method of analysis. If hypothesized
models are truly specified a priori and no data-based
model modifications are introduced, SEM is indeed
used in a confirmatory manner. However, in practice
respecifications of either the measurement model or
the latent variable model or both are quite common,
and SEM is then used in a more exploratory fashion.
The conclusion that a particular model has been
'confirmed' by the data becomes suspect in such
cases, and cross-validation is necessary to ascertain
how well the model will hold up in an actual confir-
matory analysis (cf. Biddle and Marlin, 1987; Breck-
ler, 1990).
Although some authors have taken a rather pes-
simistic view on the value of regression models and
related techniques for empirical research - for exam-
ple, Freedman (1991) argues that they "make it all
too easy to substitute technique for work" (p. 300) -
we believe that on balance researchers have put the
powerful capabilities of SEM to good use and that
empirical work has benefited from the application of
this methodology. In particular, we think that the
explicit emphasis on multi-item measurement of con-
structs and the resultant ability to assess the validity
and reliability of construct measurement has done
much to bring the importance of these issues to the
attention of marketing and consumer behavior re-
searchers and to establish what Ray (1979) calls a
marketing measurement tradition. It is clear that
valid and reliable measurement is a prerequisite to
theory testing, and SEM has certainly contributed to
theory development in this sense (see also Bagozzi
(1984)). We hope that our review of prior applica-
tions of SEM will further improve the quality of
empirical research in marketing and consumer be-
havior and ultimately advance our understanding of
substantive phenomena.
160 H. Baumgartner, C. Homburg/Intern. J. of Research in Marketing 13 (1996) 139-161
Acknowledgements
The authors thank Nirmalya Kumar, Jan-Benedict
Steenkamp, two anonymous reviewers, and the edi-
tor for helpful comments on previous versions of this
paper.
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