Section V

Moving Beyond the Basics

Chapter 9
Structural Equation Modeling: An
Introduction

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Chapter 9: Structural Equations Modeling (SEM)

LEARNING OBJECTIVES
Upon completing this chapter, you should be able to do the following:

• Understand the distinguishing characteristics of structural analysis.

• Distinguish between variables and constructs.
• Understand structural equation modeling and how it can be thought of as a combination of
familiar multivariate techniques.
• Know the basic conditions for causality and how SEM can help establish a cause-and-effect
relationship.
• Explain the types of relationships involved in SEM.
• Understand that the objective of SEM is to explain covariance and determine the fit of a
theoretical model.
• Know how to represent a SEM model visually with a path diagram.
• List the six stages of structural equation modeling and understand the role of theory in the
process.
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What is Structural Equation Modeling?
• Structural equation modeling (SEM) is a family of statistical models that seeks to explain
relationships among multiple variables. In doing so, SEM examines the structure of
interrelationships expressed in a series of equations.
• SEM involves both interdependence and dependence.
• Multiple equations represent the theoretical structure.
• Theory determines what things are connected.
• Just as importantly, theory determines what things are NOT connected.
• SEM combines two multivariate procedures into one:
• Factor Analysis – assesses fit of the theoretical measurement model connecting latent constructs and
measured variables
• Regression Analysis – assesses fit of the structural theory connecting latent constructs to each other
SEM sometimes called:
• Analysis of Covariance or Covariance Structure Analysis
• Latent Variable Analysis
• Causal Modeling
• LISREL, AMOS, EQS
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Notes on the Structure in SEM

Structure Represents Theory

• The user specifies a structural model that includes a limited set of relationships.
Thus, SEM is distinct from other multivariate procedures:
• Structural analysis is not exploratory
• SEM tests the user’s theory and does not explore relationships or reveal a model
• SEM provides more accurate estimates of parameters
• Corrects for error attenuation (suggests what the relationship would be if no unreliability existed)
• Structural equations only include the relationships necessary to represent the model.
• All other possible connections are assumed to be 0 (do not exist)
• Structural equations are contrasted with reduced form equations:
• A reduced form equation solves for a single endogenous construct (or dependent variable)
in a single equation with all and only exogenous constructs (independent variables)
employed as predictors
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Latent Constructs are Hypothetical, Unobservable, Variables

Exogenous Constructs Endogenous Constructs

Exogenous constructs are the latent, multi- Endogenous constructs are the latent,
item equivalent of independent multi-item equivalent to dependent
variables. They use a variate (linear variables. These constructs are
combination) of measures to represent theoretically determined by factors
the construct, which acts as an within the model.
independent variable in the model. • Multiple measured (sometimes called
• Multiple measured (sometimes called manifest) variables (y) represent the
manifest) variables (x) represent the endogenous constructs.
exogenous constructs.

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Defining a Model

SEM tests models

• A model is a representation of a theory.
• A theory is a systematic set of relationships providing a consistent and
comprehensive explanation of phenomena. SEM involves:
• Measurement theory – provides measurement model defining pattern
(correspondence rules) of relationships between measured variables and each
latent construct
• Structural theory – provides correspondence rules linking constructs to each other

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Depicting Theoretical Relationships in SEM

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What do the Theoretical Models Look Like?

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SEM as the Dominant Multivariate Technique

SEM’s growth
• Early 20th Century
• Sewall Wright (1921) developed a structural model of birth weight with linear
regression
• Thurstone develops factor analysis
• Late 20th Century
• Joreskog and Sorbom create LISREL software (~ 1970)
• Gains popularity with advances in computing power
• LISREL – Linear Structural Relations – sees competition from EQS and AMOS
• AMOS replaces LISREL as an SPSS add-in (late 1990s)
• AMOS’s graphics interface and availability with SPSS make it widely used

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SEM Implies Causality – “Causal Modeling”

Causal Inference – Hypothesizes a

“cause-and-effect” relationship.
1. Covariation (systematic
variation)
2. Sequence (cause before
effect)
3. Nonspurious Covariance
4. Theoretical Support

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 To the extent that this relationship
changes, the supervisor – job
satisfaction relationship is spurious.

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Example Structural Model

• A structural model showing only the

latent constructs
• 5 latent constructs
• Arrows depict relationships
• 7 relationships specified
• 3 possible relationships NOT
specified, meaning theory says
they do not exist
• the missing arrows over-
identify the model (more
in Chapter 10).

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Basics of SEM Estimation

SEM, as Analysis of Covariance, explains the observed covariance

among a set of measured variables:
• It does so by estimating the observed covariance matrix with an estimated
covariance matrix constructed based on the estimated relationships among
variables.

Data collected Calculated

externally based on user’s
theory

Observed Estimated
Covariance Covariance • The closer these are, the better the fit,
Matrix Matrix the more accurate the theory, and the
better the explanation. When they are
S Σk equal, the fit is perfect.

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Illustrating the SEM Process
Observed, Estimated, and Residual Covariance Matrices

Relatively small
residuals signal
good fit!

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The Stages in Conducting SEM

Stage 1: Defining Individual Constructs

• define construct and assign measured variables to constructs
Stage 2: Developing the Overall Measurement Model
• restrict the covariances with the pattern of connections and non-connections
Stage 3: Designing a Study to Produce Empirical Results
• study characteristics are adequate
Stage 4: Assessing the Measurement Model Validity
• fit of proposed measurement restrictions to reality
Stage 5: Specifying the Structural Model
• fit of proposed structural theory restrictions
Stage 6: Assessing Structural Model Validity
• examine diagnostics
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Stage 2: Visual Representation of a Measurement Model

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Stage 3

Missing Data Options

• Is the missing data percentage high and nonrandom so as to cause
problems in estimation or interpretation?
• If small and random, then any treatment is adequate.
• If more than 10% and/or nonrandom, missing data must be remedied.
• What is the best approach?
• See Exhibit 9.3 for summary.
• Complete Case or List-wise Deletion
• All Available or Pairwise Deletion
• Model-Based (EM)
• Modeled FIML

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Stage 3

Sample Size
• SEM is often thought to require a larger sample relative to other multivariate
approaches.
• Most importantly, the sample size required for any given statistic is a question secondary to the
sample size required to generalize from a sample to a population. In almost all instances, the
sample size requirement to infer to the population exceeds that for a specific statistic, including
any SEM approach.
• Five considerations affecting the required sample size for SEM include the following: (1)
multivariate normality of the data, (2) estimation technique, (3) model complexity, (4) the
amount of missing data, and (5) the average error variance among the reflective indicators.
• More observations than variables required as bottom-line.
• With good measurement characteristics, samples approaching 100 produce stable
results.

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Stage 4: Measurement Model Validity

• Absolute fit indices

• Always report chi-square (𝟀2) and degrees of freedom (df)
• Goodness of fit index (GFI) – illustrates goodness of fit index
• Root mean squared error of approximation (RMSEA) – illustrates badness of fit
index
• Incremental fit indices
• Relative fit
• Comparative Fit Index (CFI) – incremental, goodness of fit index, which shows
improvement in fit over null model fit
• Parsimony fit indices
• Parsimony Fit Index (PNFI) – assessing relative fit of models

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Fit Guidelines

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Stage 5: Structural Model Fit

• Restrict the measurement

model further by removing
correlation relationships that
should not theoretically exist
• Further constrain the
measurement model
• To yield the structural model of
relationships among latent
constructs

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Stage 6: Assessing Validity Further

• The test of relative fit becomes a very

practical assessment of model quality.
• The comparison of the measurement
model and theoretical model fits is a
useful way of looking at overall model fit.

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Learning Checkpoints

• Provide a basic overview of “what is SEM?”

• How does SEM combines factor analysis and linear regression?
• Why is SEM very appropriate for analyzing latent constructs?
• What are the conditions of causality?
• What is the purpose of reproducing the covariance matrix by representing
the user’s theory with equations?
• List the stages of a complete SEM analysis.

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