The problem of measurement model misspecification in behavioral and organizational research and some recommended solutions

The purpose of this study was to review the distinction between formative- and reflective-indicator measurement models, articulate a set of criteria for deciding whether measures are formative or reflective, illustrate some commonly researched constructs that have formative indicators, empirically test the effects of measurement model misspecification using a Monte Carlo simulation, and recommend new scale development procedures for latent constructs with formative indicators. Results of the Monte Carlo simulation indicated that measurement model misspecification can inflate unstandardized structural parameter estimates by as much as 400% or deflate them by as much as 80% and lead to Type I or Type II errors of inference, depending on whether the exogenous or the endogenous latent construct is misspecified. Implications of this research are discussed.