Analysing quadratic effects of formative constructs by means of variance-based structural equation modelling

Together with the development of information systems research, there has also been increased interest in non-linear relationships between focal constructs. This article presents six Partial Least Squares-based approaches for estimating formative constructs' quadratic effects. In addition, these approaches' performance is tested by means of a complex Monte Carlo experiment. The experiment reveals significant and substantial differences between the approaches. In general, the performance of the hybrid approach as suggested by Wold (1982) is most convincing in terms of point estimate accuracy, statistical power, and prediction accuracy. The two-stage approach suggested by Chin et al (1996) showed almost the same performance; differences between it and the hybrid approach - although statistically significant - were unsubstantial. Based on these results, the article provides guidelines for the analysis of non-linear effects by means of variance-based structural equation modelling. European Journal of Information Systems (2012) 21, 99-112. doi:10.1057/ejis.2011.36; published online 6 September 2011