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A Critical Examination of Common Beliefs About Partial Least Squares Path Modeling
Mikko Rnkk and Joerg Evermann
Organizational Research Methods 2013 16: 425 originally published online 7 March 2013
DOI: 10.1177/1094428112474693
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Partial Least Squares Path
Modeling
Mikko Ronkko1 and Joerg Evermann2
Abstract
Partial least squares path modeling (PLS) was developed in the 1960s and 1970s as a method for
predictive modeling. In the succeeding years, applied disciplines, including organizational and man-
agement research, have developed beliefs about the capabilities of PLS and its suitability for different
applications. On close examination, some of these beliefs prove to be unfounded and to bear little
correspondence to the actual capabilities of PLS. In this article, we critically examine several of these
commonly held beliefs. We describe their origins, and, using simple examples, we demonstrate that
many of these beliefs are not true. We conclude that the method is widely misunderstood, and our
results cast strong doubts on its effectiveness for building and testing theory in organizational research.
Keywords
partial least squares, statistical and methodological myths and urban legends, structural equation
modeling
Partial least squares path modeling (PLS) was developed in the 1960s and 1970s by Herman Wold
(cf. Joreskog & Wold, 1982) as an alternative to LISREL. However, Dijkstra (1983) soon proved
that if PLS is used as an estimator for structural equation models (SEMs), the parameter estimates
are both inconsistent and biased, leading to abandonment of further development. Nevertheless, PLS
experienced a renaissance in more applied disciplines with proponents such as Fornell and Book-
stein (1982) and later Chin (1998) and Hulland (1999), and recent publications in management
journals indicate that its use is increasing (Antonakis, Bendahan, Jacquart, & Lalive, 2010; Echam-
badi, Campbell, & Agarwal, 2006; Gruber, Heinemann, Brettel, & Hungeling, 2010; Hair, Sarstedt,
Pieper, & Ringle, 2012; Peng & Lai, 2012; Reinartz, Haenlein, & Henseler, 2009; Sosik, Kahai, &
1
Aalto University, Aalto, Finland
2
Memorial University of Newfoundland, St. Johns, Canada
Corresponding Author:
Mikko Ronkko, Aalto University School of Science, PO Box 15500, FI-00076 Aalto, Finland.
Email: mikko.ronkko@aalto.fi
426 Organizational Research Methods 16(3)
Piovoso, 2009). Following Atinc, Simmering, and Kroll (2011) we reviewed four leading manage-
ment journals, Academy of Management Journal, Journal of Applied Psychology, Journal of
Management, and Strategic Management Journal, and found 27 studies that used PLS, which are
listed in Table 1; a third of these studies were published in the past 5 years, supporting the argument
that the use of PLS is becoming more common.
In contrast to its popularity in management research, PLS has been largely ignored in research
methods journals. For example, there are no articles in Organizational Research Methods addressing
the PLS method. In our review of other top research methods journals, we found one article about
PLS (Henseler & Chin, 2010) published in Structural Equation Modeling and one article (Dijkstra,
1983) in Journal of Econometrics. No articles about PLS were found in Psychological Methods,
Psychological Bulletin, or Econometrica.
The absence of articles on PLS in the research methods literature has led researchers in disci-
plines such as strategic management (Hulland, 1999), operations management (Peng & Lai,
2012), marketing (Hair, Ringle, & Sarstedt, 2011), group research (Sosik et al., 2009), and informa-
tion systems (Gefen, Rigdon, & Straub, 2011) to develop their own guidelines on how to perform
and evaluate PLS-based studies. We argue that most of these articles present an overly positive pic-
ture of the method, with some aggressively promoting the method as a silver bullet (Hair et al.,
2011), a success story (Vinzi, Chin, Henseler, & Wang, 2010), or as a method with genuine
advantages (Henseler & Sarstedt, 2013). However, many of these articles are not based on statis-
tical theory or simulation studies but are based on beliefs about the method that earlier, similar arti-
cles have presented, leading to the perpetuation of commonly held beliefs that have not been
demonstrated, that is, methodological myths and urban legends (Vandenberg, 2006).
This article addresses some of these beliefs and shows that they are incorrect or correct only with
strong qualifications. Given the growing popularity of PLS-based studies in management research,
this is a timely and important topic.
Overview of the PLS Method

As originally presented, the statistical model of PLS is identical to the original LISREL model
(Joreskog & Wold, 1982). This model is given in Equations 1 and 2, where Z designates latent vari-
ables, y designates the indicator variables, p and b represent regression coefficients, and n and E rep-
resent random errors.1
X
Zj bj0 bji Zi nj Equation 1; called the inner model
i
ykj pkj 0 pkj Zj Ekj Equation 2; called the outer model

The model is estimated by replacing the latent variables Z with composites Y that are weighted sums
of their indicators (Equation 3) and then estimating all path coefficients (b) and factor loadings (p)
by running a separate ordinary least squares regression for each endogenous variable in the model.
X
Yj okj ykj Equation 3; latent variable estimates
kj
At this level of abstraction, PLS estimation is identical to estimation with OLS regression on
summed scales or factor scores. PLS differs from these methods in that the indicator weights o are
based on the estimated model and the sample data. The iterative weighting process begins by
approximating the latent variables as unweighted sums and then iteratively adjusting the indicator
weights and approximate latent variable scores Y~ in two steps, called inner and outer estimation,
until the weights and scores converge (Table 2).
Table 1. Use of PLS in Selected Management Journals Ordered by Year (Academy of Management Journal, Journal of Applied Psychology, Journal of Management, Strategic Man-
agement Journal).
How PLS Was Used Relationship to SEM Capabilities of PLS
Summary of Description Null Hypothesis Simultaneous PLS Is Latent Distribution Models or Reduces Appropriate for
of the Method and Why Validation of Significance Eqs./Path Variable Free/Nonnormal Measurement Works Well With Early/Exploratory
Article It Was Used Measurement Testing PLS Is SEM Analysis Analysis Data Error Small Samples Research
Cool, Dierickx, and PLS is an SEM method

Jemison, 1989 that can be used when
the data are not
appropriate for
LISREL and that avoids
many of the problems
of LISREL.
Duxbury and Higgins, PLS is an extremely
1991 powerful multivariate
analysis technique for
testing structural
models of latent
variables. PLS is ideal
for early stages of
theory testing because
of unrestrictive
assumptions.
Howell and Avolio, Description of the
1993 method is copied
from Duxbury and
Higgins (1991).
Johansson and Yip, PLS is a causal modeling
1994 technique that has less
stringent assumptions
about the data than
LISREL.
Meznar and Nigh, 1995 PLS is a second-
generation method
that examines the
relationships in the
theoretical model
simultaneously. PLS
was used because it is
well suited for
assessing predictive
relationships.
(continued)
427
Table 1. (continued)
428
Birkinshaw, Morrison, PLS is a powerful

and Hulland, 1995 multivariate analysis
technique that
belongs to the same
family of techniques as
LISREL. PLS was used
because estimating
the model as separate
equations would lead
to biased estimates.
Sosik, Avolio, and PLS is an SEM method
Kahai, 1997 that does not make
assumptions about
distributions,
observation
independence, or
variable metrics and,
because of this, is
preferable over
LISREL.
Olk and Young, 1997 PLS is an SEM method
that permits formative
indicators.
Birkinshaw, Hood, and PLS is one of the so-called
Jonsson, 1998 second-generation
techniques that allow
simultaneous model-
ing of relationships.
Shamir et al., 1998 PLS is a powerful
multivariate technique
that is ideal for testing
structural models
with latent variables.
Delios and Beamish, No description of the
1999 method given. PLS
was used because the
objective of the study
was prediction of the
dependent variable.
(continued)
Howell and Hall- PLS is a structural

Merenda, 1999 equation modeling
technique that has less
about the data. PLS
was used because it is
appropriate for early
stages of theory
development.
Avolio, Howell, and Identical with Howell and
Sosik, 1999 Hall-Merenda (1999).
Shea and Howell, 2000 PLS is a structural
equation modeling
technique used to
analyze theoretically
derived models linking
constructs and their
measures. PLS was
used because it is
appropriate for early
stages of theory
development.
Sarkar, Echambadi, and No description of the
Harrison, 2001 method or why it was
used was provided.
Tsang, 2002 No description of the
method or why it was
used was provided.
Robins, Tallman, and PLS is a latent variable
Fladmoe-Lindquist, technique that can
2002 model both reflective
and formative
indicators and is well
suited to assessing
predictive relations.
Bass, Avolio, Jung, and PLS is a structural
Berson, 2003 equation modeling
technique that has less
about the data.
429
(continued)
430
Cording, Christmann, PLS is a powerful

and King, 2008 multivariate analysis
technique of the same
family as LISREL. PLS
was used because it
allows multiple
indicators, does not
require a large sample,
and does not assume
multivariate
normality.
Zott and Amit, 2008 No description of the
method or why it was
used was provided.
Tiwana, 2008 PLS is an SEM method. It
was used because of
small sample size.
Groth, Hennig-Thurau, PLS is a distribution-free
and Walsh, 2009 structural equation
modeling technique
with less constraints
and statistical specifi-
cations than LISREL.
Ashill and Jobber, 2010 PLS is an SEM-based
methodology. PLS was
chosen because of the
small sample size and
exploratory nature of
the research.
Gruber et al., 2010 PLS is a variance-based
structural equation
modeling technique. It
was used for its ability
to accommodate for-
mative indicators.
(continued)
Crossland and PLS is a form of structural

Hambrick, 2011 equation modeling
that is particularly
useful for small
samples and in early
stages of theory
development.
Cheung, Myers, and PLS is an SEM method.
Mentzer, 2011 PLS was used because
the primary concern
of the study is with the
prediction of a
dependent
endogenous variable
Wang and Bansal, 2012 No description of the
method except that it
permits variables to
have both antecedents
and consequences in
the model.
Number of surveyed 25 25 21 8 11 17 4 10 9
studies
Percentage of surveyed 93 93 78 30 41 63 15 37 33
studies
Note: PLS partial least squares; SEM structural equation model.
431
Table 2. The Basic PLS Algorithm (Lohmoller, 1989, p. 29).
Stage 1 Iterative estimation of weights and LV scores; starting at Step 4 with arbitrary weights, repeat Steps 1
to 4 until convergence is achieved
sign covYj ; Yi if Yj and Yi are adjacent
1. Inner weights (centroid weighting scheme)a vji
P 0 otherwise
2. Inside approximation Y~j vji Yi
i
3. Outer weights; estimate okj in Equation 4 (Mode A) or Equation 5 (Mode B) using ordinary least
squares regression P
4. Outside approximation Yej fj o ~ kj ykj
kj
Stage 2 Estimation of path and loading coefficients by ordinary least squares regression from Equation 1 (path
coefficients) and Equation 2 (loadings coefficients) where the latent variables Zj are replaced by their
estimates Yj
Stage 3 Estimation of the means of latent and manifest variables as weighted sums
Note: LV latent variable; PLS partial least squares.
a
Other weighting schemes are path and factor weighting. However, the centroid weighting scheme is most frequently used
and is the default method in much PLS software.
During the inner estimation step, new latent variable score approximations are calculated as
weighted sums of adjacent latent variable score approximations, that is, of latent variables related
to the focal variable by regression relationships. During the outer estimation step, new indicator
weights o~ are calculated in either of two ways. In Mode A estimation, the manifest variables y are
regressed on the approximations Y~:
ykj o ~ kj Y~j ~Ekj :

~ kj 0 o Equation 4; Mode A estimation
In Mode B estimation,2 the approximations Y~ are regressed on the manifest variables y:
X
Y~j ~ kj ykj d~j :
o Equation 5; Mode B estimation
kj
The new indicator weights are then used to estimate new latent variable score approximations for the
following iteration of inner estimation. The basic PLS algorithm is shown in Table 2. The only
difference between PLS and OLS is the different method of indicator weighting.
Statistical Myths and Urban Legends About the PLS method

We now discuss six beliefs about PLS that emerged from our review of the articles in Table 1 and the
numerous articles providing guidelines on how to use the method and assess the results. Each subsec-
tion starts by describing the myth and reviewing its origins and supporting evidence. We use the simple
two-construct model shown in Figure 1, along with simulated data sets, to demonstrate that many fea-
tures ascribed to the PLS algorithm do not hold even in a simple example. The simple example was
chosen for the sake of illustration and the ability to derive results analytically. However, we emphasize
that our following arguments make no assumptions about the form or complexity of the model.
Myth 1: PLS Has Advantages Over Traditional Methods Because It Is an SEM Estimator
Almost every article in Table 1 and all of the guidelines on PLS present it as an SEM method, with
some even emphasizing its differences from OLS on summed scales or factor scores (e.g., Gefen
et al., 2011). This characterization cannot be found in the original articles on PLS (e.g., Wold,
Ronkko and Evermann 433

A B
a1
a 2
a
3
b 1
b2
b
3
a1 a2 a3 b1 b2 b3
a 1
a 2
a
3
b 1
b 2
b 3
Figure 1. Example model with two constructs.
1985b). Rather, it is attributable to a widely cited article by Fornell and Bookstein (1982). Never-
theless, even the original characterization as a latent variable modeling technique is misleading.
In contrast to claims by many studies in Table 1, PLS does not estimate path models with latent vari-
ables, but with composites, and instead of using path analysis with simultaneous equations, PLS uses
separate OLS regressions. Thus, it is conceptually closer to OLS regressions on summed scales or
factor scores than to covariance structure analysis.
Although PLS can technically be argued to be an SEM estimator, so can OLS regression with
summed scales or factor scores: Both fit the definition of the term estimator (Lehmann & Casella,
1998, p. 4) because they provide some estimates of model parameters. This, however, does not mean
that PLS or OLS are good estimators in the sense of being consistent and unbiased. An estimator is
consistent if its estimates converge to the population value as the sample size increases. It is
unbiased if the mean of repeated estimates using samples drawn from the same population
approaches the population value as the number of samples increases. PLS has been shown to have
neither of these properties. In fact, Wold (e.g., 1985b) is quite clear that PLS estimates are incon-
sistent, Dijkstra (1983) presented a proof of this, and more recent PLS literature (e.g., Chin,
1998) also readily acknowledges that PLS estimates are biased.
In addition to providing inconsistent and biased estimates, the lack of an overidentification test is
another disadvantage of PLS over SEM. Paths between variables in a simultaneous equations model
can be constrained to zero. Such constraints make the model overidentified and allow testing whether
the constrained model fits the data. Thus, this overidentification test can be used to rule out endogene-
ity (unmodeled dependencies) that would otherwise cause inconsistency of estimates (Antonakis et al.,
2010). Overidentification tests also allow the researcher to rule out alternative causes, which is a key
step in testing a model causally (Antonakis et al., 2010; Bollen, 1989, chap. 3). Because no overiden-
tification test is available for PLS, PLS cannot test a model causally, but is limited to estimating sta-
tistical associations.
Despite the evidence, many of the reviewed articles argue that PLS supports causal modeling
(Birkinshaw, Hood, & Jonsson, 1998; Cool, Dierickx, & Jemison, 1989; Delios & Beamish,
1999; Johansson & Yip, 1994; Shea & Howell, 2000), and some researchers have the misconception
that using PLS avoids inconsistent and biased parameter estimates. For example, Birkinshaw,
Morrison, and Hulland (1995) write that to avoid obtaining biased and inconsistent parameter esti-
mates for these equations, the [hypothesized model] must be analyzed using a multivariate estima-
tion technique such as two-stage least squares or PLS (p. 647). However, of these two estimators,
only two-stage least squares is consistent.
In summary, although the argument that PLS is an SEM estimator is technically true, it is as cor-
rect to state that OLS regression is an SEM estimator. The lack of unbiasedness and consistency
means that both methods will provide erroneous estimates. This, and the lack of an
overidentification test, means that any potential advantage that might be obtained by specifying a
research problem as an SEM model is lost (Antonakis et al., 2010; McDonald, 1996). The claim that
PLS provides advantages because it is an SEM method is a methodological myth, and the current
practice of labeling PLS as an SEM method, although correct in a strict technical sense, is very
misleading.
Myth 2: PLS Reduces the Effect of Measurement Error

Some of the articles in Table 1 and some of the reviewed guidelines argue that PLS reduces the
effects of measurement errors. Although most of these articles fail to explain how this is accom-
plished, any such advantage over OLS must be a result of the indicator weighting in PLS, because
this is the only difference between PLS and OLS. As with most other myths that we discuss, this
myth also seems to originate from the work by Fornell and Bookstein (1982), who state, without
providing justification, that PLS separates irrelevant variance from the model. This unproven notion
has been replaced more recently by the idea that PLS increases the reliability of the composites by
using indicator weighting to minimize error (e.g., Gefen et al., 2011).
We first illustrate the effect of measurement error for Mode A weighting. Consider indicator a1 in
the example shown in Figure 1. Starting with Steps 1 and 2 in Stage 1 (Table 2), the inner weighting
and inside approximation yield an A~ that is approximated by B, ~ which is a composite of b1 , b2 , and
b3 . In Step 3 of Stage 1 (Table 2), a1 is weighted based on its correlation with this composite. This
correlation is simply a weighted sum of the correlations between a1 and the indicators b1 , b2 , and b3 .
It can be written as a function of the current values of the indicator weights (o) and the correlations
between the indicators (r), as follows:
X
3
ra1 B~ obi ra1 bi : Equation 6
i1
In the two-construct example, under the default PLS assumption of standardized latent variables and
indicators, the correlation between two indicators is the sum of the correlation caused by common
antecedents and error correlation. Using covariance algebra one can write the correlation between
indicators as follows:
rai bj pai blpbj Eai bj : Equation 7
Substituting Equation 7 into Equation 6 and rearranging the terms yields
X
3 X
3
ra1 B~ pa1 b obi pbi obi Ea1 bi : Equation 8
i1 i1
This equation shows that although the indicator weighting system takes the indicator reliability into
account, it is highly sensitive to the correlated errors ea1 bi in the second sum of Equation 8, contrary
to recent claims (Gefen et al., 2011). This is problematic because, as a result of sampling variation,
the errors are never exactly uncorrelated, even for correct models. When the latent variables are not
correlated (b 0), the effect is more pronounced because the first term in Equation 8 vanishes and
only the effect of correlated errors remains.
With PLS Mode B, the indicator weights are defined based on regressions of the latent variable
estimate on their indicators. Hence, they are also affected by the correlations between indicators of
the same construct. In this regression, a set of highly reliable indicators is highly collinear, resulting
in suppression effects and instability of the regression coefficients and the resulting indicator
weights.
Beta = 0 Beta = 0.3

30
30
PLS Mode A
PLS Mode B
Sum scales
25
25
20
20
Density
Density
15
15
10
10
5
5
0
0
0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8

Reliability Reliability
Figure 2. Distribution of reliability for partial least squares (PLS) Mode A, PLS Mode B, and summed scales in
the two-construct model over 500 replications.
To illustrate these effects numerically for our two-construct example model, we simulated
data for two conditions, one with no effect between constructs (b 0) and one with a moderate
size effect (b 0:3). We set the factor loadings to 0.6, 0.7, and 0.8. Similar loadings have been
used in prior studies (Goodhue, Lewis, & Thompson, 2012; Reinartz et al., 2009). We used 100
observations as the sample size, which is fairly typical for a PLS study. We performed 500
replications for both experimental conditions. The models were estimated using the plspm
package for R (Sanchez & Trinchera, 2012). We generated the indicator data by first generating
a sample of construct true scores and then used these to generate the indicator data. This
enabled us to calculate the reliability of the construct estimates directly as a squared correlation
between the true scores and estimated latent variable values. Figure 2 compares the reliability
of PLS Mode A and PLS Mode B. We also included summed scales as it is the simplest way to
construct composite variables that any other method should exceed to be considered useful
(McDonald, 1996).
Figure 2 shows that for both PLS modes, summed scales provide better (more reliable) construct
scores, and PLS Mode B performs substantially worse than PLS Mode A. The reason for this lower
reliability can be seen in Table 3, which shows that, although on average more reliable indicators are
weighted more highly, the effect of random correlations causes large variance in the weights, so that
any individual replication is very unlikely to have weights even close to an optimal combination. In
addition, the collinearity and suppression effects for Mode B estimation are seen clearly in the higher
standard deviation of the weights. The lower means of Mode B weights are a result of occasional
negative weights caused by collinearity.
We now show how the weighting affects the regression estimates between the latent variables.
The standardized path estimate (b) ^ between composites A and B is equal to their correlation:
!
X3 X
3
^
b cor oa ai ; wb bj : Equation 9
i j
i1 j1
In PLS, the weights are chosen so that the construct estimates are standardized. Thus, the correlation
is equal to the covariance, and one can write the covariance of sums as
Table 3. Means (standard deviations) of Weight for Indicator a1 in the Example Over 500 Replications.
Beta 0 Beta 0.3
Mode A Mode B Mode A Mode B
Weight of a1 (population loading 0.6, reliability 0.36) 0.27 (0.40) 0.09 (0.66) 0.35 (0.18) 0.20 (0.50)
X
3 X
3
^
b oai obj rai bj : Equation 10
i1 j1
Substituting Equation 7 into this and rearranging the terms yields the following:
3 X
X 3 3 X
X 3
^b
b oai obj pai pbj oai obj Eai bj : Equation 11
i1 j1 i1 j1
Equation 11 shows that not only the indicator weights but also the path coefficient estimates are
affected by the correlated errors. The bias caused by unmodeled correlations is well known
(Zimmerman & Williams, 1977), but the joint effect that causes this bias to be amplified by PLS
has not been documented in prior literature. This is illustrated in Figure 3, which shows that the para-
meter estimates obtained from PLS are strongly biased away from zero, whereas no such bias exists
when the model is estimated with regression on summed scales or SEM.3 This effect is especially
pronounced when b 0 where both Mode A and Mode B estimation produce a bimodal distribution
of estimates, symmetrical around 0. These artificially inflated parameter estimates can lead to arti-
ficial inflation of statistical significance and incorrect inference.
In contrast to the unsubstantiated claims that PLS reduces the effect of measurement error, we
have shown that the indicator weights are strongly affected by error correlations and even the small
chance correlations caused by sampling variation are sufficient to affect the weights, resulting in
lower reliability composites than even simple summed scales.
The options available for reducing the effect of measurement error with composite variables are
limited because any linear composite of indicators that contain error will also be contaminated with
error. Random error in the composites causes attenuation of bivariate correlations resulting in bias in
the regression estimates. Although it is possible to apply a correction and then use the disattenuated
correlations in regression analysis, ML estimation of SEM models has superseded this approach
(Cohen, Cohen, West, & Aiken, 2003, pp. 38-39, 473-474).
Myth 3: PLS Can Be Used to Validate Measurement Models

Most of the studies listed in Table 1 use PLS to validate measurement models, and many (e.g.,
Shamir, Zakay, Breinin, & Popper, 1998; Tiwana, 2008) even assume that PLS can be used to con-
duct a confirmatory factor analysis. Many researchers seem to also assume that statistics that are
typically presented with the PLS results constitute a de facto model test: 7 of the articles listed in
Table 1 use the terms model test, testing the model, or similar terminology. Again, these are beliefs
that do not originate from Wold, who did not discuss model testing, validation, or fit, but rather used
the term test for predictive relevance (without however clearly defining this concept).
The model assessment criteria currently used can be attributed to Fornell and Bookstein (1982),
who presented a set of heuristics for assessing PLS models. The most commonly used are the
Beta = 0 Beta = 0.3

4
PLS Mode A
5
PLS Mode B
Sum scales
SEM
4
3
Density
3
Density
2
2
1
1
0
0
0.6 0.4 0.2 0.0 0.2 0.4 0.6 0.4 0.2 0.0 0.2 0.4 0.6 0.8
Parameter estimate Parameter estimate
Figure 3. Distribution of parameter estimates for partial least squares (PLS) Mode A, PLS Mode B, summed
scales, and structural equation modeling (SEM) in the two-construct model, 500 replications.
composite reliability (CR) metric and the average variance extracted (AVE) statistic, which are both
more or less directly based on factor loading estimates. In addition to these, a family of goodness-of-
fit (GoF) indices exists that are calculated on the basis of the endogenous variable R2 values and
indicator communalities (cf. Henseler & Sarstedt, 2013). There are also various standardized root
mean squares of different model residuals (SRMR) that Lohmoller (1989) proposed to be used for
model assessment, but we are not aware of any applications of these criteria.
Because the use of GoF indices was recently comprehensively and convincingly debunked by
Henseler and Sarstedt (2013) and because of the obscurity of the SRMR indices, we focus on the AVE
and CR statistics, which are commonly used in the studies that we reviewed. Aguirre-Urreta, Marakas,
and Ellis (2013) showed that the CR indices are severely biased estimate of reliability of the com-
posites. Moreover, the same issues apply also to the AVE statistic. First, their definitions do not
include information about the indicator weights (Fornell & Larcker, 1981, pp. 45-46) but assume
unweighted composites, which is intentionally violated in a PLS analysis. Second, they are based
on factor loadings, but PLS does not calculate factor loadings, but composite loadings (McDonald,
1996, p. 248). These are always higher than factor loadings as they also explain part of the error
variance, whereas a factor analysis explains only the common variance between the indicators.4
Consequently, the CR and AVE statistics are also overestimated.
To show the effect of model misspecifications on the AVE, CR, (relative) GoF, and (indicator)
SRMR statistics and to demonstrate that these heuristics are unable to reliably identify when the model
does not fit data, we calculated these model quality metrics for our two-construct model with 500 repli-
cations (Table 4). The estimated model is always our two-construct example, and we vary the popu-
lation model to make the estimated model misspecified (Misspecified A, B, C in Table 4). The last
column in Table 4 shows the percentage of models in each condition that a researcher would accept as
valid, based on commonly used cutoff values for the different heuristics.5 This percentage should be
high for the true model and low for the misspecified models. However, results show that this number is
high for the composite reliability heuristic across all conditions; researchers are likely to accept all mis-
specified models as valid. This number is low for the SRMR heuristic across all conditions; researchers
are likely to also reject the true model as invalid. The situation is even worse for the rGoF heuristic. By
this heuristic, researchers are likely to reject only the true model and are likely to accept only the
Table 4. Model Fit Indices for the Example Model Estimated With Data From Four Different Population
Models.
Population Model Statistic 5% Median 95% Accept (%)

Composite reliability 0.875 0.940 0.960 98.0
A B
Average variance extracted 0.563 0.646 0.695 98.2
AVEhighest squared corr. 0.454 0.563 0.631 100
a1 a2 a3 b1 b2 b3
Relative goodness of fit 0.620 0.859 0.971 28.6
Std. root mean square residual 0.076 0.090 0.112 13.6


A
AVEhighest squared corr. 0.025 0.075 0.193 89.2
a1 a2 a3 b1 b2 b3 Relative goodness of fit 0.882 0.934 0.971 88.0
Std. root mean square residual 0.148 0.179 0.211 0
Composite reliability 0.917 0.947 0.965 100
A B Average variance extracted 0.596 0.658 0.710 100
a1 a2 a3 b1 b2 b3 Relative goodness of fit 0.955 0.979 0.993 100

Std. root mean square residual 0.080 0.093 0.110 4.2
A B C
a1 a2 a3 b1 b2 b3
Relative goodness-of-fit 0.904 0.958 0.991 94.8
Std. root mean square residual 0.184 0.213 0.244 0
Note: Cutoff values for statistics: composite reliability > 0.7, average variance extracted > 0.5, AVEhighest squared correla-
tion > 0 (Fornell & Bookstein, 1982), relative goodness of fit > 0.9, standardized root mean square residual (SRMR) < 0.08 (Hu
& Bentler, 1999). SRMR is calculated using indicator residuals, and the cutoff value is based on the limit that is commonly used
with SEM.
misspecified models. Finally, the two AVE-based heuristics appear to detect only the third misspeci-
fied model, making them unreliable indicators of misspecified models.
In contrast to these heuristics, the w2 test of model fit provides a statistically sound way of iden-
tifying misspecified models for medium and large sample sizes,6 and the field of psychometrics pro-
vides decades of guidance on how to validate measurement with factor analysis (cf. Nunnally, 1978).
If desired, factor loadings can be obtained with common factor analysis, and the reliability of a com-
posite with arbitrary weights can be estimated as described by Raykov (1997; see Aguirre-Urreta
et al., in press, for how to apply the procedure with PLS analysis). Because of these better alterna-
tives, the measurement model should never be evaluated based on the composite loadings produced
by PLS or any statistic derived from these. In summary, we conclude that the idea that PLS results
can be used to validate a measurement model is a myth.
Myth 4: PLS Can Be Used for Testing Null Hypotheses About Path Coefficients
Almost all of the articles listed in Table 1 use PLS for null hypothesis significance testing (NHST) of
path coefficients, a practice that can be traced back to Fornell and Bookstein (1982). Under NHST,
statistical inferences are made based on the p value, which is defined as the probability of obtaining
a value of a test statistic . . . as large as the one obtainedconditional on the null hypothesis being
true (Nickerson, 2000, p. 247). Thus, NHST relies on a known sampling distribution of the test
statistic when the null hypothesis of no effect holds.
PLS mode A, beta = 0 PLS mode B, beta = 0
5
5
Real dist. (Mode A)

Real dist. (Mode B)
5 bootstrap dist.
4
4
3
3
Density
2
2
1
1
0
0
0.6 0.4 0.2 0.0 0.2 0.4 0.6 0.6 0.4 0.2 0.0 0.2 0.4 0.6
PLS mode A, beta = 0.3 PLS mode B, beta = 0.3

6
6
5
5
4
4
Density
3
2
2
1
1
0
0.4 0.2 0.0 0.2 0.4 0.6 0.8 0.4 0.2 0.0 0.2 0.4 0.6 0.8
Parameter estimate Parameter estimate
Figure 4. Distribution of parameter estimates over 500 replications and distribution of 500 bootstrap esti-
mates for the first five replications for partial least squares (PLS) Mode A and PLS Mode B in the two-construct
model.
The current practice in PLS studies is to use bootstrapping to estimate the standard errors for the
parameter estimates, calculate the ratio of a parameter estimate to its standard error, and compare
this statistic to the t distribution to obtain the p value. The use of a t distribution assumes a normal
distribution of the underlying parameter estimates. However, as shown in Figure 3, the distribution is
not normal but of bimodal shape when the null hypothesis of no effect holds (b 0. The exact dis-
tribution of the path coefficients is unknown as it depends on the sampling distribution of the indi-
cator weights, which is unknown (Dijkstra, 1983). Thus, because NHST requires a test statistic with
a known sampling distribution, the PLS path estimates cannot be used in NHST.
The use of bootstrapped confidence intervals (Wood, 2005) is an alternative to NHST for statis-
tical inference. Even this approach can be problematic with PLS: Bootstrapping relies on the
assumption that the bootstrap estimates follow the same distribution as the original statistic, but this
is not always the case, leading to incorrect inference (cf. Bollen & Stine, 1992). Figure 4 shows the
parameter estimate distribution for 500 replications of the simulation estimates and, for the first 5 of
these replications, shows the bootstrap distribution of the parameters. It is clear that the bootstrapped
replications do not follow the original sampling distribution in our simple example model.7 Thus, we
conclude that bootstrapped confidence intervals of PLS estimates should not be used for making sta-
tistical inferences until further research is available to show under which conditions, if any, the boot-
strapped distribution follows the sampling distribution of the PLS parameter estimate.
Myth 5: PLS Has Minimal Requirements on Sample Size

The belief that PLS does not require a large sample size is widely held. This belief is repeated in
14 of the studies listed in Table 1, and several studies use sample sizes as small as 21 (Cool
et al., 1989). The most common citations for the small sample size are two book chapters by Chin
(1998; Chin & Newsted, 1999) and the article by Fornell and Bookstein (1982). The arguments pre-
sented in these articles can be traced to a single, unpublished conference paper by Wold (partly
republished as Wold, 1985a).8 However, that paper does not provide any evidence about the statis-
tical power or parameter accuracy of PLS when applied to small samples, but clearly states that PLS
parameter estimates converge to their population values only in the theoretical case of consistency
at large where both the sample size and the number of indicators approach infinity.
In contrast to the lack of support for the myths discussed earlier, a study exists that seeks to pro-
vide empirical support for this belief. Chin and Newsted (1999) concluded that PLS generated more
accurate parameter estimates than summed scales when the sample size was small. That study has
been strongly criticized by Goodhue et al. (2012), who point out that although PLS estimates are
slightly larger than regression estimates, so too are standard errors, and there is consequently no
advantage in terms of statistical power. However, this result is challenged by a more advanced simu-
lation study by Reinartz et al. (2009). They conclude that although PLS results are always more
biased than ML-SEM results, PLS has more statistical power and lower mean estimation error when
used with small sample sizes. However, the power estimates in their study are questionable because
they are based on p values with an assumption of a t distribution, which we showed earlier to be
flawed. Furthermore, their study does not test for false positives, so low p values may be a reflection
of positive bias resulting from the use of an inappropriate significance test.
Although the results of these studies show that PLS estimates are on average larger than regres-
sion estimates and tend to get larger as the sample size decreases, none of the studies explained why
this is the case. We suggest that the apparent advantage of PLS with small sample sizes is a fallacy
that results from ignoring the effects of chance correlations. Earlier, we showed that correlated errors
bias the PLS path estimates away from zero, leading to artificially inflated path estimates and pos-
sibly artificially inflated power. In addition, because the estimates were distinctly different from
zero when there was neither an effect between the constructs nor a correlated error in the population
(Figure 3), it appears that sampling error is sufficient to substantially distort the parameter estimates
from their true value. As sampling error increases with decreasing sample size, there are more
chance correlations that PLS can capitalize on; consequently the estimates are biased further from
zero.
We illustrate the effect of sample size on PLS parameter estimates by simulating data for our two-
construct example using three different sample sizes and either no effect (b 0) or a moderate effect
(b 0.3). Figure 5 shows the probability density distribution of parameter estimates for b for these
six conditions. Focusing on the case when b 0.3, decreasing sample size does not lead to an
increase in the accuracy of the parameter estimates but simply an increase in their magnitude, first
approaching the population value and then surpassing it as the sample size decreases further. This
can also be clearly seen in the results obtained by Chin and Newsted (1999), where the path
coefficients are overestimated by up to 40% for the smallest sample size. Thus, we conclude that
Sample size 100, beta = 0 Sample size 50, beta = 0 Sample size 25, beta = 0
PLS Mode A
PLS Mode B
2.5
Sum scales
3
1.5
SEM
2.0
Ronkko and Evermann
2
1.5
1.0
Density
1.0
1
0.5
0.5
0
0.0
0.0
0.6 0.4 0.2 0.0 0.2 0.4 0.6 0.6 0.4 0.2 0.0 0.2 0.4 0.6 0.6 0.4 0.2 0.0 0.2 0.4 0.6
Sample size 100, beta = 0.3 Sample size 50, beta = 0.3 Sample size 25, beta = 0.3
3.0
5
2.5
4
2.0
3
2
1.5
Density
2
1.0
1
1
0.5
0
0.0
0.4 0.2 0.0 0.2 0.4 0.6 0.8 0.4 0.2 0.0 0.2 0.4 0.6 0.8 0.4 0.2 0.0 0.2 0.4 0.6 0.8
Parameter estimate Parameter estimate Parameter estimate
Figure 5. Distribution of parameter estimates for partial least squares (PLS) Mode A, PLS Mode B, summed scales, and structural equation modeling (SEM) with
different sample sizes in the two-construct model, 500 replications.
441
the small-sample-size capabilities of PLS are a myth arising from ignoring the effect of sampling
error amplification and an inappropriate use of the t test for parameter significance.
The best remedy for small samples is to collect sufficient data to avoid the problem. SEM tech-
niques for small samples (e.g., Herzog & Boomsma, 2009) and for estimating sample size require-
ments (e.g., Lai & Kelley, 2011) are actively studied, but fundamental laws of probability limit what
can be accomplished. Because the sample size requirement is tied to the size of the model, one way
to reduce the required sample size is to reduce the number of indicators by parceling (Landis, Beal,
& Tesluk, 2000; Little, Cunningham, Shahar, & Widaman, 2002). Another potentially useful option
is to use the limited information 2SLS estimator instead of the full information ML.
Myth 6: PLS Is Most Appropriate for Exploratory or Early Stage Research

When PLS was developed, it was primarily intended for causal-predictive analysis in situations of
high complexity but low theoretical information (Joreskog & Wold, 1982, p. 270). In the more
recent literature, the notion of low theoretical information has led to the understanding that PLS path
modeling is more an exploratory approach than a confirmatory one (Hair et al., 2011).
Using PLS as an exploratory or early-stage theory testing tool does not feature strongly in the
early PLS articles. The exception is Lohmoller (1989), who, after comparing PLS and LISREL esti-
mates, concluded correctly that if [the researcher] is sure that the model is correct, . . . then he may
accept the ML [maximum likelihood SEM] estimates (p. 213). The corollary assumed by Lohmol-
ler, neither logically implied nor correct, is that PLS is appropriate when the researcher is not sure
that the model is correct. Lohmoller nevertheless concludes that LS methods are . . . more explora-
tive (p. 213), implying that the term explorative refers to situations where the model may be incor-
rect. Similarly, Fornell and Bookstein (1982, p. 450) correctly state that if one had reason to doubt
the accuracy of the theoretical model and/or the validity of the indicators, the LISREL estimate
would be exaggerated, but, like Lohmoller (1989), they erroneously and without evidence con-
clude that more credence should be given to the PLS estimate.
Given that 7 of the studies listed in Table 1 argue for PLSs suitability for exploratory research, it
is problematic that none of the PLS authors explicitly and clearly explain the meaning of the term
exploratory or explorative, nor do they explain how PLS supports exploration. In fact, all of the stud-
ies listed in Table 1 are presented in a way that is identical to studies applying SEM to test a pre-
specified model: A literature review is followed by the derivation of causal theory and formal
hypotheses and, finally, the estimation of a single model.
One way to understand exploratory analysis is that exploratory methods should reveal patterns in
the data (Mulaik, 1985) instead of testing a prespecified hypothesis or model. It is clear that PLS
does not have this capability because the model must be completely specified prior to the analysis.
Moreover, in contrast to widely used SEM estimators, PLS lacks diagnostic tools such as modifica-
tion indices that can be used for model building in SEM.
Another way to understand exploratory work is by characterizing it in terms of three features:
uncertainty about the correctness of the model, possibly poor measurement, and small sample sizes.
However, earlier in this article we concluded that the idea that PLS has special capabilities to handle
measurement error and small sample sizes is a myth. We have also demonstrated that PLS cannot be
used to test models, that is, to reliably identify model misspecifications. If there is a possibility that the
model is incorrect, one should certainly not use a method that cannot detect model misspecification.
Finally, construct scores and path estimates calculated using information from an incorrect model are
likely to be severely biased (Dijkstra, 1983; Evermann & Tate, 2010). We conclude that because of
these weaknesses, PLS is not an appropriate choice for early-stage theory development and testing.
Many introductory texts on SEM describe different model building strategies and show how mod-
ification indices can be used for exploration. In addition, new SEM-based methods for exploratory
analyses are actively developed (e.g., Asparouhov & Muthen, 2009). If, on the other hand, explora-
tory research refers to uncertainty about the model rather than the search for a model, we recommend
using the 2SLS estimator that is less sensitive to model misspecification than the ML estimator
(Bollen, Kirby, Curran, Paxton, & Chen, 2007).
Discussion and Conclusion

In the spirit of Vandenberg (2006), this article has examined statistical myths and urban legends sur-
rounding the often-stated capabilities of the PLS method and its current use in management and
organizational research. Tracing back the literature on PLS, we described the origins of each myth
to show that they are not based on statistical principles, but misinterpret the original articles on PLS
or attribute capabilities to the method based on incorrectly or misleadingly classifying it as an SEM
method. We have illustrated why these beliefs are incorrect by using a simple model under conser-
vative conditions (e.g., normal, complete data). Although we acknowledge this limitation, we are not
aware of any statistical method that does not work well with a simple model under conservative con-
ditions, but whose performance improves with model complexity. This is counterintuitive, and the
PLS literature also makes no such claims. In fact, it often uses the exact same model that we have
used (e.g., Chin, 1998). Second, as stated in the introduction, the statistical theory and formal anal-
yses presented in our article do not depend on model complexity.
Despite its demonstrated shortcomings and lack of evidence of the advantages, management
researchers increasingly use PLS for purposes that it is not suitable for. One reason that is frequently
implicit in the applied literature appears to be a misunderstanding about the relative capabilities of
PLS and the commonly used SEM estimators. Our review of several PLS studies shows that authors
frequently argue that typical SEM estimators require a large sample size, assume multivariate nor-
mality, and have difficulties with some instances of formative indicators. Although some of these
assertions were correct in the 1970s when PLS was developed, much has changed since then (Gefen
et al., 2011). Nevertheless, the weaknesses of the most commonly used SEM estimators do not imply
that PLS is necessarily superior. First, a great many analytical and simulation studies, going back to
the early 1970s, have analyzed the behavior of SEM estimators in a wide range of different situa-
tions. In contrast, far fewer systematic empirical simulation studies of PLS have been conducted.
Hence, comparatively little is understood about PLS, including its weaknesses. However, the
absence of a demonstration of unsuitability of a method does not imply suitability of the method.
Second, the choice between the typical SEM estimators and PLS is a false dichotomy. If one decides
to estimate an SEM model using separate OLS regressions with construct scores, one can rely for
guidance on decades of research on how to do this with summed scales or factor scores. In fact, our
evidence suggests that even simple summed scales provide better reliability than PLS. When used
with regression, these traditional methods to generate composites have test statistics with known dis-
tributions allowing NHST. In addition, using a model-based weighting system as used in PLS will
guarantee problems with interpretational confounding (Burt, 1976).
If one were a cynic, one could add another reason for the popularity of PLS. Because PLS does
not have a test of overall model fit (in contrast to SEMs test of overall model fit) and its model qual-
ity heuristics cannot identify a misspecified model (Evermann & Tate, 2010), researchers who
employ PLS never find themselves in a position where a model is decisively rejected by the evi-
dence. Given the publication bias in many fields for positive results, it comes as no surprise that
some researchers prefer PLS over SEM.
Despite the popularity of PLS, many claims about it must be included among the statistical myths
and urban legends. In contrast to Hair et al. (2011), we conclude that PLS is decidedly not a silver
bullet, and it is very difficult to justify its use for theory testing over SEM or even the more tradi-
tional combination of measurement validation with factor analysis and testing hypotheses with
regression with summed scales or factor scores. PLS may be useful for purely predictive analyses,
but we are not aware of any studies showing this to be the case either.
Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publi-
cation of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
Notes
1. Lohmollers (1989) description of the PLS model, on which this section is based, uses the term residual (the
difference between observed and estimated value) instead of error (a theoretical source of random variation)
when discussing the population model. We have corrected the terminology in our description of the PLS
method.
2. There is a persisting and unsubstantiated belief originating from the article by Fornell and Bookstein (1982)
that Mode B would be appropriate for formative measurement. Because formative measurement is based on
assumptions that are very unlikely to ever hold (Edwards, 2011), we do not cover formative models in the
article, but use Mode B only to estimate reflective models as it was originally intended.
3. SEM models were estimated with Lavaan 0.4-14 (Rosseel, 2012).
4. For example, if the construct A in our example model has three indicators (a1, a2, and a3) each with a factor
P3
loading of 0.4, the covariance between one indicator and the composite is covaj ; ai 33
25. Because the
i1
3 P
P 3
99
variance of the composite is covai; aj 25, the correlation between an item and a composite is
i1 j1
p
covaj ;A
p 11
5 0.663, which overestimates the factor loading by 66%.
varA
5. Composite reliability > 0.7, average variance extracted > 0.5, AVEhighest squared correlation > 0 (Fornell
& Bookstein, 1982), relative goodness of fit > 0.9 (Gefen, Rigdon, & Straub, 2011), SRMR < 0.08 (Hu &
Bentler, 1999).
6. However, researchers must be aware of possible covariance-equivalent models.
7. When used with the default settings, some PLS software does not bootstrap the PLS algorithm, but a mod-
ified version that is designed to produce smaller standard errors. We also estimated our example with this
construct level sign change correction, but the results were no closer to the real distribution.
8. Chin cites Wold (1985b), which uses Wold (1985a) as an example of a small-sample study when discussing
model cross-validation.
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Author Biographies
Mikko Ronkko is a doctoral candidate at Aalto University, School of Science. His research interests are in
statistics and research methods, with a focus on structural equation modeling.
Joerg Evermann is an associate professor of information systems. His research interests are in statistics and
research methods, with a focus on structural equation modeling.

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Organizational Research

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The Research Methods Division of The Academy of Management

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Mikko Ronkko1 and Joerg Evermann2

Overview of the PLS Method

ykj pkj 0 pkj Zj Ekj Equation 2; called the outer model

Cool, Dierickx, and PLS is an SEM method

Birkinshaw, Morrison, PLS is a powerful

How PLS Was Used Relationship to SEM Capabilities of PLS

Howell and Hall- PLS is a structural

How PLS Was Used Relationship to SEM Capabilities of PLS

Cording, Christmann, PLS is a powerful

How PLS Was Used Relationship to SEM Capabilities of PLS

Crossland and PLS is a form of structural

Note: PLS partial least squares; SEM structural equation model.

Table 2. The Basic PLS Algorithm (Lohmoller, 1989, p. 29).

ykj o ~ kj Y~j ~Ekj :

Statistical Myths and Urban Legends About the PLS method

Figure 1. Example model with two constructs.

Myth 2: PLS Reduces the Effect of Measurement Error

Beta = 0 Beta = 0.3

0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8

Beta 0 Beta 0.3

Mode A Mode B Mode A Mode B

Myth 3: PLS Can Be Used to Validate Measurement Models

Beta = 0 Beta = 0.3

Population Model Statistic 5% Median 95% Accept (%)

Composite reliability 0.711 0.844 0.895 95.4

PLS mode A, beta = 0 PLS mode B, beta = 0

Real dist. (Mode A)

PLS mode A, beta = 0.3 PLS mode B, beta = 0.3

Parameter estimate Parameter estimate

Myth 5: PLS Has Minimal Requirements on Sample Size

Myth 6: PLS Is Most Appropriate for Exploratory or Early Stage Research

Discussion and Conclusion

Declaration of Conflicting Interests

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