Factor score path analysis: An alternative for SEM?

Abstract. Theoretical researchers consider Structural Equation Modeling (SEM) to be the preferred method to study the relationships among latent variables. However, SEM has the disadvantage of requiring a large sample size, especially if the model is complex. Furthermore, since SEM estimates all parameters simultaneously, one misspecification in the model may influence the whole model. For these reasons, applied researchers often use a two-step Factor Score Regression (FSR) approach. In the first step, factor scores are calculated for the latent variables, which are used to perform a linear regression in the second step. However, this method results in incorrect regression coefficients. Croon (2002) developed a method that corrects for this bias. We combine this method of Croon (2002) with path analysis, resulting in Factor Score Path Analysis. This method results in correct path coefficients and has some advantages over SEM: it requires smaller sample sizes, can handle more complex models and the method ...