(SEM) Structural Equation Modeling

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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

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G e t your p r o j e c t s d o n e .

What is Structural Equation


Modeling (SEM) analysis?
By Riya Jain & Abhinash on February 10, 2020

Structural Equation Modeling (SEM) analysis is a statistical method used in


social science studies for testing the linkage between multiple variables at any
point in time. SEM analysis is an extension of the simple linear model.

For example, there are many factors that affect the organizational commitment
and the job satisfaction level of an employee. If the impact of organizational
commitment and job satisfaction level on perceived performance need to be
determined, then the usage of a simple linear model would be complex and
difficult. Thus, SEM analysis help in the easy linkage of the factors and
derivation of the results. The model formulated for stating the linkage is shown in
the below figure.

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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

Figure 1: Sample SEM Model

Why use SEM analysis?


Simpler statistical testing methods like regression and factor analysis link the
dependent and independent variables. However when there is a large number of
causal variables present or when factors influencing independent variables are
present, it becomes complicated. SEM analysis helps in studying the direct and
indirect complex relationship between the causal variables in a single model.

By including measurable and non-measurable variables, SEM analysis


determines the linkage between the variables. For example, psychological
variables like intelligence level and consumer attitude towards a brand can be
measured in numerical terms using a scale. In such cases, SEM analysis provides
the opportunity to connect qualitative variables with the factors affecting them.

The terms to represent the different structures of linkage between the variables
and to define the nature of variables, relationships, errors, and models are:

Non-measurable variables are referred to as latent variables,

Independent variables are referred to as exogenous variables,

Validation of a known relationship between the dependent and independent


variables is considered a confirmatory factor analysis,

Error or business while computing the value of a non-measurable variable


from the measurable variable is termed as measurement error, and

The linkage between the non-measurable variable is defined as a structural


model.

The below figure explains each of these terms which are commonly used while
having SEM analysis.

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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

Figure 2: Main terminologies of SEM analysis

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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

Assumptions of the SEM model which


need to be fulfilled to derive accurate
results
A large sample size is required for reliable results i.e. sample size should be
at least 100.

Variables in the SEM programs are assumed to be continuous and normally


distributed. However, in studying data obtained from the Likert scale like in
the case of self-esteem though the data is not continuous, the variable is.

The relationship between the variables should be linear in nature.

There should not have outliers.

Multiple observed variables i.e. at least three should be included to measure


each latent variable.

Multicollinearity should not be present in the model.

Missing data should be avoided. In having less than 5% of the total data as
missing, deletion could be done but in case of having more than 5% of data
as missing, the maximum likelihood estimation method should be adopted.

Visual representation
After discussing the meaning of each of the technical terms, this section provides
a visual explanation of the terms.

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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

Figure 3: Path Diagram (Malkanthie, 2015)

In the above figure ME1, ME2, ME3, ME4, and ME5 represent the measurement
error; OV1, OV2, OV3, OV4, and OV5 are the observed variables; LV1 and LV2
show the latent variables, and RE1 depicts the residual error.

Furthermore, in the above figure, there are two measurement models and one
structural model i.e.

Figure 4: Measurement model

Figure 5:
Structural model

Benefits of the SEM analysis


Compared to regression analysis and factors analysis, there are certain benefits of
using SEM analysis i.e.

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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

Test theoretical propositions via a non-experimental database i.e. the


theoretical variables like job satisfaction of the employees or the attitude of
the consumers could be compared by just including the factors which are
affecting them. No experimental study is required for specifically deriving
the numerical value of a non-measurable variable.

Include observed as well as latent variables for analysis i.e. SEM analysis
helps in including the measurable and non-measurable variables in the
model. For example, the impact of measurable factors like price, sales, or
discount could be determined on the non-measurable factor i.e. customer
attitude using SEM analysis.

Assumptions of the model are flexible i.e. problems like non-normal


distribution, discontinuity in the database, and incomplete dataset could be
handled by modifications.

Confirmatory factor analysis is done over exploratory factor analysis via


SEM analysis. i.e. the focus of the analysis method is to validate the linkage
between the variable instead of exploring which model is better suitable.
Though, SEM analysis also helps in comparing the models and deriving the
information about the better fit model but focuses on testing the reliability
and validity of the model.

Results derived from the analysis are more reliable due to the inclusion of
measurement error. As there is a large possibility of error while computing
the value of a factor in social science, thus usage of the confirmatory factor
analysis method in SEM analysis helps in including measurement error for
each computed variable to reduce biases.

Simultaneously model could be studied even in the presence of multiple


dependent variables. As a single linear or multiple regression analysis
equations only provide the facility for testing the relationship of independent
variables with only one dependent variable. The process needs to be repeated
many times in case of more than one dependent variable and even in case of
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5/7/23, 1:08 AM What is Structural Equation Modeling (SEM) analysis?

a large number of independent variables the analysis becomes complicated.


SEM analysis overcomes these complexities of regression analysis and helps
in running the models with a large number of dependent and independent
variables at the same time.

SEM helps in testing the overall fitness of the model even in the presence of
multiple relationships. As often the information about the accuracy and
validity of the model is difficult to derive in the case of multiple linkages i.e.
in the presence of various factors or mediating variables. Thus, SEM
analysis by providing the values of absolute fitness, incremental fitness, and
parsimonious fitness indexes helps in the verification of the model accuracy.

The simultaneous comparison could be done based on mean, variance, or


regression coefficients i.e. as the SEM model enables the analysis of
different models at the same time, this comparison between the results of
different models could be easily done.

Limitations of the SEM analysis


Despite being a powerful statistical analysis technique, there are certain
disadvantages to the usage of SEM analysis. Issues raised in having an SEM
analysis are listed below:

The focus of the model is on the prediction of the causal relationship


between the variables i.e. derivation of the hypothesis testing result. The
non-experimental data stating the correlation between the variables are
converted into the model representing causal linkage.

Numerous modifications could be done in order to attain the appropriate


value of index i.e. NNFI or chi-square.

Though the assumptions are flexible but still the technicality and complexity
of the assumptions prohibit the first-generation usage of SEM analysis.

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Software packages that support SEM


analysis
Software packages under which SEM analysis could be performed are:

AMOS (commonly used)

LISREL (Traditional method)

EQS (used with a small sample)

Mplus (used in case sample is not enough)

Mx

SEPATH

CALIS

References
Malkanthie, A. (2015) ‘The Basic Concepts of Structural Equation Modeling’, Lap Lambert Academic Publishing, 1(Jan
uary), p. 55. doi: 10.13140/RG.2.1.1960.4647.

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