Testing Moderating Effects in PLS Path Models: An Illustration of Available Procedures

Abstract

Along with the development of scientific disciplines, namely social sciences, hypothesized relationships become increasingly more complex. Besides the examination of direct effects, researchers are more and more interested in moderating effects. Moderating effects are evoked by variables whose variation influences the strength or the direction of a relationship between an exogenous and an endogenous variable. Investigators using partial least squares path modeling need appropriate means to test their models for such moderating effects. We illustrate the identification and quantification of moderating effects in complex causal structures by means of Partial Least Squares Path Modeling. We also show that group comparisons, i.e. comparisons of model estimates for different groups of observations, represent a special case of moderating effects by having the grouping variable as a categorical moderator variable. We provide profound answers to typical questions related to testing moderating effects within PLS path models: 1. How can a moderating effect be drawn in a PLS path model, taking into account that the available software only permits direct effects? 2. How does the type of measurement model of the independent and the moderator variables influence the detection of moderating effects? 3. Before the model estimation, should the data be prepared in a particular manner? Should the indicators be centered (by having a mean of zero), standardized (by having a mean of zero and a standard deviation of one), or manipulated in any other way? 4. How can the coefficients of moderating effects be estimated and interpreted?And, finally: 5. How can the significance of moderating effects be determined? Borrowing from the body of knowledge on modeling interaction effect within multiple regression, we develop a guideline on how to test moderating effects in PLS path models. In particular, we create a graphical representation of the necessary steps to take and decisions to make in the form of a flow chart. Starting with the analysis of the type of data available, via the measurement model specification, the flow chart leads the researcher through the decisions on how to prepare the data and how to model the moderating effect. The flow chart ends with the bootstrapping, as the preferred means to test significance, and the final interpretation of the model outcomes.