The Use of Partial Least Squares Path Modeling in Causal Inference for Archival Financial Accounting Research


  • Chin Fei Goh Faculty of Management, Universiti Teknologi Malaysia, 81310 UTM Johor Bahru, Johor, Malaysia
  • Mohamad Bilal Ali Faculty of Education, Universiti Teknologi Malaysia, 81310 UTM Johor Bahru, Johor, Malaysia
  • Amran Rasli Faculty of Management, Universiti Teknologi Malaysia, 81310 UTM Johor Bahru, Johor, Malaysia



Partial least squares, path modeling, structural equation modeling, archival data


In financial accounting research, multivariate regression is almost exclusively the dominant statistical method. By contrast, Partial Least Squares path modeling is a under-utilized statistical method. The aim of this study is to examine how Partial Least Squares path modeling can be applied to the archival financial accounting research. This article first presents an overview on multivariate regression and structural equation modeling. The authors then highlight that advantages of using Partial Least Squares path modeling to address the research constraints in causal inference for archival financial accounting research. 


Lee, L., Petter, S., Fayard, D. and Robinson, S. 2011. On the Use of Partial Least Squares Path Modeling in Accounting Research. International Journal of Accounting Information Systems. 12(4): 305–328.

Larcker, D. F. and Rusticus, T. O. 2010. On the use of Instrumental Variables in Accounting Research. Journal of Accounting and Economics. 49(3): 186–205.

Gassen, J. 2014. Causal Inference in Empirical Archival Financial Accounting Research. Accounting, Organizations and Society (In Press).

Lev, B. and Sunder, S. 1979. Methodological Issues in the Use of Financial Ratios. Journal of Accounting and Economics. 1(3): 187–210.

McLeay, S. and Omar, A. 2000. The sensitivity of prediction models to the non-normality of bounded and unbounded financial ratios. The British Accounting Review. 32(2): 213-230.

Goh, C. F., Khan, S.-U.-R. and Rasli, A. 2013. Board Independence, Firm Investment and Firm Performance: The Moderating Role of Family Ceo. International Journal of Information Processing and Management. 4(7): 72–78.

Berthelot, S., Francoeur, C. and Labelle, R. 2012. Corporate Governance Mechanisms, Accounting Results and Stock Valuation in Canada. International Journal of Managerial Finance. 8(4): 332–343.

Azim, M. I. 2012. Corporate Governance Mechanisms and Their Impact on Company Performance: A Structural Equation Model Analysis. Australian Journal of Management. 37(3): 481–505.

Tam, O. K. and Tan, M. G.-S. 2007. Ownership, Governance and Firm Performance in Malaysia. Corporate Governance: An International Review. 15(2): 208–222.

Chin, W. W. (2010). How to Write Up and Report PLS Analyses. In Esposito Vinzi, V., Chin, W. W., Henseler, J. & Wang, H. (ed.) Handbook of Partial Least Squares. Heidelberg: Springer Berlin.

Hair, J. F., Hult, G. T. M., Ringle, C. M. and Sarstedt, M. 2013. A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM). Thousand Oaks: Sage.

Neelamegham, R. and Jain, D. C. 1997. Investigating Consumer Choice Processes for Experience Goods: An Econometric Analysis. Working Paper. INSEAD.

Fornell, C. and Larcker, D. F. 1981. Evaluating Structural Equation Models With Unobservable Variables And Measurement Error. Journal of Marketing Research. 39–50.

Fornell, C. 1984. A Second Generation of Multivariate Analysis: Classification of Methods and Implications for Marketing Research. Unpublished discussion paper, Graduate School of Business Administration, The University of Michigan.

Haenlein, M. and Kaplan, A. M. 2004. A Beginner's Guide to Partial Least Squares Analysis. Understanding Statistics. 3(4): 283–297.

Henseler, J., Ringle, C. M. and Sinkovics, R. R. 2009. The Use of Partial Least Squares Path Modeling in International Marketing. Advances in International Marketing. 20: 277–319.

Hair, J. F., Ringle, C. M. and Sarstedt, M. 2011. PLS-SEM: Indeed a Silver Bullet. The Journal of Marketing Theory and Practice. 19(2): 139–152.

Urbach, N. and Ahlemann, F. 2010. Structural Equation Modeling in Information Systems Research Using Partial Least Squares. Journal of Information Technology Theory and Application. 11(2): 5–40.

Vilares, M. J., Almeida, M. H. and Coelho, P. S. 2010. Comparison of Likelihood and PLS Estimators for Structural Equation Modeling: A Simulation with Customer Satisfaction Data Handbook of Partial Least Squares. In Esposito Vinzi, V., Chin, W. W., Henseler, J. & Wang, H. (ed.) Springer Berlin Heidelberg.

MacCallum, R. C. and Browne, M. W. 1993. The Use of Causal Indicators in Covariance Structure Models: Some Practical Issues. Psychological Bulletin. 114: 533–541.

Rasli, A., Goh, C. F. and Khan, S.-U.-R. 2013. Demystifying the Role of a State Ownership in Corporate Governance and Firm Performance: Evidence from the Manufacturing Sector in Malaysia. Zbornik Radova Ekonomskog Fakulteta u Rijeci-Proceedings of Rijeka Faculty of Economics. 31(2): 233–252.

Cheng, S. 2008. Board Size and the Variability of Corporate Performance. Journal of Financial Economics. 87(1): 157–176.

King, T.-H. D. and Wen, M.-M. 2011. Shareholder Governance, Bondholder Governance, and Managerial Risk-taking. Journal of Banking & Finance. 35(3): 512–531.

Ho, R. 2014. Handbook of Univariate and Multivariate Data Analysis with IBM SPSS. 2rd ed. Boca Raton: CRC Press.

Silva, J. M. C. S. and Tenreyro, S. 2006. The Log of Gravity. Review of Economics and Statistics. 88(4): 641–658.

Westerlund, J. and Wilhelmsson, F. 2009. Estimating the Gravity Model Without Gravity Using Panel Data. Applied Economics. 43(6): 641–649.

Carte, T. A. and Russell, C. J. 2003. In Pursuit of Moderation: Nine Common Errors and Their Solutions. MIS Quarterly. 27(3): 479–501.

Limpert, E., Stahel, W. A. and Abbt, M. 2001. Log-normal Distributions Across the Sciences: Keys and Clues. BioScience. 51(5): 341–352.

Cooke, T. E. and Wallace, R. S. O. 1990. Financial Disclosure Regulation and Its Environment: A Review and Further Analysis. Journal of Accounting and Public Policy. 9(2): 79–110.

Fahlenbrach, R. 2009. Shareholder rights, boards, and CEO compensation. Review of Finance. 13(1): 81–113.

Saleh, N. M., Rahman, M. R. C. A. and Hassan, M. S. 2009. Ownership Structure and Intellectual Capital Performance in Malaysia. Asian Academy of Management Journal of Accounting and Finance. 5(1): 1–29.

Jalila, S. and Devi, J. 2012. Ownership Structure Effect on the Extent of Segment Disclosure: Evidence from Malaysia. Procedia Economics and Finance. 2(0): 247–256.

Capezio, A., Shields, J. and O'Donnell, M. 2011. Too Good to be True: Board Structural Independence as a Moderator of CEO Pay-for-firm-performance. Journal of Management Studies. 48(3): 487–513.

Wu, A. D. and Zumbo, B. D. 2008. Understanding and Using Mediators and Moderators. Social Indicators Research. 87(3): 367–392.

Rigdon, E. E., Ringle, C. M. and Sarstedt, M. 2010. Structural Modeling of Heterogeneous Data with Partial Least Squares. In Malhotra, N. K. (Ed.) Review of marketing research. United Kingdom: Emerald Group Publishing Limited.

Li, J., Lam, K., Qian, G. and Fang, Y. 2006. The Effects of Institutional Ownership on Corporate Governance and Performance: An Empirical Assessment in Hong Kong. Management International Review. 46(3): 259–276.

Johnson, R. A. and Greening, D. W. 1999. The Effects of Corporate Governance and Institutional Ownership Types on Corporate Social Performance. The Academy of Management Journal. 42(5): 564–576.

Diamantopoulos, A., Sarstedt, M., Fuchs, C., Wilczynski, P. and Kaiser, S. 2012. Guidelines for Choosing Between Multi-Item and Single-Item Scales for Construct Measurement: A Predictive Validity Perspective. Journal of the Academy of Marketing Science. 40(3): 434–449.

Chin, W. W. 1998. Commentary: Issues and Opinion on Structural Equation Modeling. MIS Quarterly. 22(1): vii–xvi.

Steiger, J. H. 2007. Understanding the Limitations of Global Fit Assessment in Structural Equation Modeling. Personality and Individual Differences. 42(5): 893–898.

Fan, X., Thompson, B. and Wang, L. 1999. Effects of Sample Size, Estimation Methods, and Model Specification on Structural Equation Modeling Fit Indexes. Structural Equation Modeling: A Multidisciplinary Journal. 6(1): 56–83.

DavÄik, N. S. 2013. The Use and Misuse of Structural Equation Modeling In Management Research. Working Paper – Working Paper – 13/07 Instituti Universitario de Lisboa.

Kock, N. 2011. Using WARPPLS in e-collaboration Studies: Mediating Effects, Control and Second Order Variables, and Algorithm Choices. International Journal of e-Collaboration (IJeC). 7(3): 1–13.

Sarstedt, M., Henseler, J. and Ringle, C. M. 2011. Multi-Group Analysis in Partial Least Squares (PLS) Path Modeling: Alternative Methods and Empirical Results. In Sarstedt, M., Schwaiger, M. & Taylor, C. R. (ed.) Advances in international marketing. U.K.: Emerald Group Publishing Limited.

Goh, C. F., Khan, S.-U.-R. and Rasli, A. 2013. Governing Agribusiness: Good Corporate Governance Practices and Firm Performance. International Journal of Information Processing and Management. 4(7): 79–88.

Berrone, P., Makri, M. and Gomez-Mejia, L. R. 2008. Executive Compensation in North American High-Technology Firms: A Contextual Approach. The International Journal of Human Resource Management. 19(8): 1534–1552.

Echambadi, R., Campbell, B. and Agarwal, R. 2006. Encouraging Best Practice in Quantitative Management Research: An Incomplete List of Opportunities. Journal of Management Studies. 43(8): 1801–1820.