Using SmartPLS Software:

Structural Equation Modeling (PLS-SEM)

•Key Speakers:
• Prof. Dr. Masood-Ul-Hassan
• Mr. Arslan Ayub

Rendezvous:
Department of Education,
University of Sargodha, Sargodha, Pakistan
Prof. Dr. Masood-Ul-
Hassan
• Professor of Business Management
• Department of Commerce, BZU, Multan, Pakistan
• PhD Business Management
• Instanbul University, Turkey
• Additional Qualification:
• Cost and Management Accounting (ICMAP)
• Insurance/Reinsurance (CI Institute)
• Law (BZ University)
• Served more than a decade as a Corporate
Trainer in SLIC Pakistan
• Research Publications
• 80+ with h-index=14 and i-10 index=25
• Total no. of citations 679 (624 since 2014)
Mr. Arslan Ayub
• Lecturer of Business Management (2015-2018)
• University of Sargodha, LYP Campus,
Faisalabad
• PhD Scholar (Business Management)
• Department of Commerce, BZ University,
Multan, Pakistan
• Corporate experience: retail selling (pharma)
• Research Publications
• 18 (two in Clarivate Analytics ESCI)
• h-index=5 and i-10 index=3
• Total number of citations 93 (84 since 2014)
 Contents

• History of Structural • Path Models with • Assessing PLS-SEM • Evaluation of

Equation Model
Latent Variables Results Structural Model
• What is Structural
Equation Model? • Rule of Thumb for • Evaluation of • Mediation
• Consideration in Using Choosing between Measurement Model Analysis
SEM PLS-SEM and CB- • Practical
SEM Demonstration
• Social science researchers have been using
statistical tools for many years
• Application of first generation statistical History
methods e.g. factor analysis, regression of SEM
analysis was prevalent till 1980s
• Second generation methods emerged since
1990s
• In some disciplines these represent almost
more than 50% in empirical research
• The emerging second generation tool is Partial
Least Squares Structural Equation Modeling
(PLS-SEM)
 Researchers initially relied on Univariate and
Bivariate analysis to understand data and
relationships

SEM is used for more complex relationships

What is
SEM? SEM runs more sophisticated multivariate
data analysis methods

SEM involves the application of statistical

methods that simultaneously analyse multiple
variables
What is SEM? (Contd…)
Primarily Exploratory Primarily Confirmatory

First Generation • Cluster Analysis • Analysis of Variance

Technique • Exploratory Factor • Logistic Regression
Analysis • Multiple Regression
• Multidimensional • Confirmatory Factor
Scaling Analysis

Second Generation • Partial Least Squares • Co-variance Based

Technique Structural Equation Structural Equation
Modeling (PLS-SEM) Modeling (CB-SEM)
Consideration in Using SEM

1 2 3 4 5
Composite Measurement Measurement Coding Data
variables scales distribution
 Path Models with
Latent Variables
• Exogenous Variable
• Whose value is independent from other
variables
• Endogenous Variable
• Whose value is dependent on other variables
• Measurement Model/Outer Model
• Relationship between manifest and latent
variables
• Structural Model/Inner Model
• Relationship between exogenous and
endogenous latent variables
• Reflective Model
• Indicators are caused by the latent variables
(arrows are pointing from latent to manifest
variable)
• Formative Model
• Indicators cause the construct (arrows are
pointing from manifest to latent variable)
 Use • The goal is predicting key target constructs
• Formatively measured constructs are part of the

PLS- structural model

• The structural model is complex

SEM
• The sample size is small
• 10 times of the indicators of the construct
• 10 times of the structural paths
Rule of Thumb
for Choosing when • Data is nonnormally distributed

between PLS-
SEM and CB-
SEM
Use CB- • The goal is theory testing

SEM • Error terms require additional specification

• The research requires a global goodness-of-fit (GoF)
criterion
when
 n of del Internal consistency
Convergent validity Discriminant validity
o
atio t M (Cronbach’s alpha,
(indicator reliability, (Fornell Larcker,
l u en
Eva rem composite reliability)
average variance Cross-Loadings,
e asu extracted) HTMT Ratio)
M
Assessing
PLS-SEM a
al u a l
n of el
tio Mod
Assess structural
model for collinearity
Assess structural
paths
Assess the Level of R2

Results Ev ctur
Str
u
issue

Assess the effect size Predictive relevance

f2 q2
 Evaluation of Measurement Model

1 2 3

Internal Consistency Convergent Validity Discriminant Validity

• Cronbach’s alpha (sensitive to
number of items in the scale)
• Composite reliability
• Values between 0.6 and 0.7
acceptable in exploratory research
• Values between 0.7 and 0.9
satisfactory
• Values above 0.95 are less
desirable
• Indicator reliability (outer loading)
• Latent variable should explain at least 50%
of the indicator’s variance i.e. 0.7082
• Items should be removed below 0.708 if
there is a problem with internal
consistency
• Minimum acceptable value = 0.40
• AVE
• Value should be higher than 0.5
• Minimum acceptable value = 0.4
• Fornell Larcker
• Square Root of AVE
• Should be greater than its highest
correlation with any other construct
• Cross Loadings
• Indicators outer loading should be
greater than any of its cross-loadings
• HTMT Ratio
• Maximum threshold level is 0.90
 Collinearity Assessment

• Variance inflation factor (VIF)

• Values < 5

Evaluation Structural Model Path Coefficients

of • Standardized values between -1 and +1

• Close to 0 indicate weak relationship
Structural • Significance of coefficients depends upon
standard error
Model • Two-tailed tests (t value should be greater
than the critical value)
• 10%(1.65); 5%(1.96); 1%(2.57)
• One-tailed tests (t value should be greater
than the critical value)
• 10%(1.28); 5%(1.65); 1%(2.33)
 Coefficient of Determination
Values 0.25, 0.50, & 0.75
(R 2
)
0.2 is high in explaining
Values between 0 and 1 are weak, moderate, and
consumer behaviour
substantial

Evaluation
of
Structural Effect size f2
R2included – R2exluded / 1 - R2included

Model Values 0.02, 0.15, & 0.35 indicate small, medium, and large effects

(Contd…)
Blindfolding and Predictive Relevance Q2
Cross validated redundancy F2
Cross validated communality H2
approach (latent endogenous
approach (Manifest variables)
variables)
Mediation Analysis

• Mediator variable intervenes

between two variables
• A change in the exogenous
construct results in a change in the
mediator variable, which, in turn,
changes the endogenous construct
• Strong a priori
theoretical/conceptual support is
required to explore meaningful
mediating effects
• VAF = indirect effect / total effect
Mediation Analysis (Contd…)
Two types of non-mediation
• Direct-only non-mediation (direct
effect is significant but not the
indirect effect)
• No-effect no mediation (neither
direct nor indirect effect is significant
Three types of mediation
• Complementary mediation (indirect
and direct both are significant and
point in same direction)
• Competitive mediation (indirect and
direct both are significant and point
in opposite direction)
• Indirect-only mediation (indirect
effect is significant but not the
direct effect)
 Practical Thank You
Demonstration