The Use and Misuse of Structural Equation Modeling in Management Research: A Review and Critique

The purpose of this paper is to question the current research myopia in management research, because the paper adumbrates theoretical foundations and guidance for the two SEM streams: covariance-based and variance-based SEM; and improves the conceptual knowledge by comparing the most important procedures and elements in the SEM study, using different theoretical criteria.

Abstract

The research practice in management research is dominantly based on structural equation modeling, but almost exclusively, and often misguidedly, on covariance-based SEM. We adumbrate theoretical foundations and guidance for the two SEM streams: covariance-based, also known as LISREL, covariance structure analysis, latent variable analysis, etc.; and variance-based SEM, also known as a component-based SEM, PLS, etc. Our conceptual framework discusses the two streams by analysis of theory, measurement model specification, sample and goodness-of-fit. We question the usefulness of Cronbach’s alpha research paradigm and discuss alternatives that are well-established in social science, but not well-known in the management research community. We conclude with discussion of some open questions in management research practice that remain under-investigated and unutilized.