EFA

Exploratory Factor Analysis

 EFA
▪ Factor analysis is used as a data reduction technique.
▪ Factor analysis takes a large number of variables and
reduces or summarizes it to represent them in different
smaller factors, those factors are made up of the initial set of
variables.
▪ Factor analysis is a method for investigating whether a
number of variables of interest are related to a smaller
number of unobservable factors. This is done by grouping
variables based on inter-correlations among a set of
variables.
EFA
▪ Those initial variables are the manifest variables/observed variables while the factors that are
extracted in the process are the latent variables.
▪ A common usage of factor analysis is in developing scale/questionnaires for measuring
constructs (factors) that are not directly observable in real life.
▪ The factor Analysis technique primarily examines the systematic interdependence among a
set of observed variables (through correlation), and those variables, that have higher
correlation are grouped together.
▪ Factor analysis helps the scholars answer the question that “How well do the items
(variables) go well together? In case we are building a new Scale”.
EFA
▪ When exploratory factor analysis is applied to a data set, the method searches for relationships
(variables with high correlation are grouped together) between the variables in an effort to
reduce a large number of variables to a smaller set of composite factors (i.e., combinations of
variables).
▪ The final set of composite factors is a result of exploring relationships in the data and reporting
the relationships that are found (if any).
▪ In simple words, EFA is an exploratory technique that is utilized in research to group a large
number of variables (observed variables) into smaller representative factors (latent factors)
BASIC TERMINOLOGIES IN
FACTOR ANALYSIS
▪ Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy: The Kaiser-Meyer-Olkin

(KMO) measure of sampling adequacy is a statistics used to examine the appropriateness of

factor analysis based on the sample of the study. A high value of statistic (from 0.5 – 1)
indicates the appropriateness of the factor analysis for the data in hand, whereas a low value of
statistic (below 0.5) indicates the inappropriateness of the factor analysis. This means that the
sample is not enough for EFA.
BASIC TERMINOLOGIES IN
FACTOR ANALYSIS
▪ Bartlett’s test of Sphericity: Bartlett’s test of sphericity is a test statistic used to examine the
hypothesis that the variables are uncorrelated in the population. In other words, the population
correlation matrix is an identity matrix; each variable correlates perfectly with itself (r = 1) but
has no correlation with the other variables (r = 0).

A value less than 0.05 indicate that the data in hand do not produce an identity matrix as with an
identify matrix, factor analysis is meaningless. This means that there exists a significant
relationship among the variables. A significant result (Sig. < 0.05) indicates matrix is not an
identity matrix; i.e., the variables do relate to one another enough to run a meaningful EFA.
BASIC TERMINOLOGIES IN
FACTOR ANALYSIS
▪ Communality: Communality is the amount of variance a variable shares with all the other
variables being considered. Small values indicate variables that do not fit well with the factor
solution, and should possibly be dropped from the analysis. Normally values Less than .50 are
removed.
▪ Percentage of Variance: It gives the percentage of variance that can be attributed to each
specific factor relative to the total variance in all the factors.
▪ Eigen Value: The eigenvalue represents the total variance explained by each factor. Factors
having eigenvalues over one (1) are selected for further study.
BASIC TERMINOLOGIES IN
FACTOR ANALYSIS
▪ Scree Plot: It is a plot of eigenvalues and factor number according to the order of extraction.
This plot is used to determine the optimal number of factors to be retained in the final solution.
▪ Factor Loading: Also referred to as factor-variable correlation. Factor loadings are simple
correlations between the variables and the factors. Factor loadings show how well the items
represents the underlying factor. It should be above 0.50.
▪ Factor Matrix: A factor matrix contains the factor loadings of all the variables on all the
factors extracted.
 ROTATION METHOD
Makes the Loading Patterns Easy to Understand
1. Varimax (most common)
Minimizes number of variables with extreme loadings (high or low) on a factor. Minimizes the
correlation between factors. Makes it possible to identify a variable with a factor. Components are
always orthogonal—each component explains non-redundant information
2. Direct oblimin (DO)
Factors are allowed to be correlated
Rotations that allow for correlation are called oblique rotations; rotations that assume
the factorsare not correlated are called orthogonal rotations.
Varimax returns factors that are orthogonal; Oblimin allows the factors to not be orthogonal.
 ROTATION METHOD
Makes the Loading Patterns Easy to Understand
1. Varimax (most common)
Minimizes number of variables with extreme loadings (high or low) on a factor. Minimizes the
correlation between factors. Makes it possible to identify a variable with a factor. Components are
always orthogonal—each component explains non-redundant information
2. Direct oblimin (DO)
Factors are allowed to be correlated
Rotations that allow for correlation are called oblique rotations; rotations that assume
the factorsare not correlated are called orthogonal rotations.
Varimax returns factors that are orthogonal; Oblimin allows the factors to not be orthogonal.
 PROCESS OF CONDUCTING THE
FACTOR ANALYSIS
▪ Step 1: Problem Formulation
▪ Step 2: EFA Requirements
▪ Step 3: Appropriate Factoring Technique
▪ Step 4: Decision regarding No. of Factors
▪ Step 5: Factor Rotation
▪ Step 6: Model Fit
▪ Step 7: Running Exploratory Factor Analysis
▪ Step 8: Interpretation and Reporting
 STEP 1: PROBLEM
FORMULATION
▪ The first step in conducting the factor analysis is to formulate the problem of the factor analysis. As
discussed earlier, the main focus of the factor analysis is to reduce data.
▪ For this purpose, a researcher has to select a list of variables that will be converted into a new set of
factors based on the common essence present in each of the variables.
▪ For selecting variables, a researcher can take the help of literature, past research, or use the
experience of other researchers or executives. for more on scale development process, please click
here
▪ It is important to note that the variables should be measurable on an interval scale or a ratio scale.
▪ Another important aspect of the factor analysis is to determine the sample size, which will be used
for the factor analysis. As a thumb rule, the sample size should be four or five times of the variable
included in the factor analysis.
 STEP 2: EFA REQUIREMENTS
▪ Analyze the correlation among the variables. If there is no correlation among the variables or if the
degree of correlation among the variables is very low, then the appropriateness of the factor
analysis will be under serious doubt. In the factor analysis, a researcher expects that some of the
variables are highly correlated with each other to form a factor.
▪ Kaiser has presented the range as follows: statistic >0.9 is marvellous, >0.8 meritorious, >0.7
middling, >0.6 mediocre, >0.5 miserable, and <0.5 unacceptable.
▪ Bartlett’s test of sphericity tests the hypothesis whether the population correlation matrix is an
identity matrix. The existence of the identity matrix puts the correctness of the factor analysis under
suspicion. P values less than .05 shows that population correlation matrix is not an identity matrix.
▪ The communalities describe the amount of variance a variable shares with all other variables taken
into study. Relatively small value of the communality suggests that the concerned variable is a
misfit for the factor solution and should be dropped out from the factor analysi
STEP 3: FACTORING
TECHNIQUE
▪ The principal component method is the most commonly used method of data analysis in the factor
analysis model.
▪ When the objective of the factor analysis is to summarize the information in a larger set of variables
into fewer factors, the principal component analysis is used.
▪ The main focus of the principal component method is to transform a set of interrelated variables
into a set of uncorrelated linear combinations of these variables.
▪ This method is applied when the primary focus of the factor analysis is to determine the minimum
number of factors that attributes maximum variance in the data. The obtained factors are often
referred as the principal components.
 STEP 4: NO. OF FACTORS
▪ Eigen Value: An eigenvalue is the amount of variance in the variable taken for the study that is
associated with a factor. According to eigenvalue criteria, the factors having more than one
eigenvalue are included in the model.
▪ Scree Plot: Scree plot is a plot of the eigenvalues and component (factor) number according to the
order of extraction.
▪ The shape of the plot is used to determine the optimum number of factors to be retained in the final
solution. The objective of the Scree plot is to visually isolate an elbow, which can be defined as the
point where the eigenvalues form a liner descending trend.
▪ Percentage of Variance Criteria: It gives the percentage of variance that can be attributed to each
specific factor relative to the total variance in all the factors. This approach is based on the concept
of cumulative percentage of variance.
▪ The number of factors should be included in the model for which cumulative percentage of
variance reaches a satisfactory level. The general recommendation is that the factors explaining
60%–70% of the variance should be retained in the model.
 STEP 5: FACTOR ROTATION
▪ After selection of factors, the immediate step is to rotate the factors. The rotated simple structure
solutions are often easy to interpret, whereas the originally unextracted (unrotated) factors are often
difficult to interpret.
▪ A rotation is required because the original factor model may be mathematically correct but may be
difficult in terms of interpretation. If various factors have a high loading on the same variable, then
interpretation will be extremely difficult.
▪ Rotation solves this kind of interpretation difficulty. The main objective of rotation is to produce a
relatively simple structure in which there may be a high factor loading on one factor and a low
factor loading on all other factors.
▪ The widely applied method of rotation is the ‘Varimax procedure.’ Although a number of rotation
methods have been developed, varimax has been generally regarded as the best orthogonal rotation
and is overwhelmingly the most widely used orthogonal rotation in psychological research.
STEP 6: MODEL FIT
▪ The last step in the factor analysis is to determine the fitness of the factor analysis model. In factor
analysis, the factors are generated on the basis of observed correlation between the variables.
▪ The degree of correlation between the variables can be reproduced. For an appropriate factor
analysis solution, the difference between the reproduced and observed correlation should be small
(less than 0.05).
▪ As a rule of thumb, ‘a model that is a good fit will have less than 50% of the non-redundant
residuals with absolute values that are greater than .05’.
STEP 7: INTERPRETATION AND
REPORTING
▪ An EFA was performed using a principal component analysis and varimax rotation. The minimum
factor loading criteria was set to 0.50. The communality of the scale, which indicates the amount of
variance in each dimension, was also assessed to ensure acceptable levels of explanation. The
results show that all communalities were over 0.50.
▪ An important step involved weighing the overall significance of the correlation matrix through
Bartlett’s Test of Sphericity, which provides a measure of the statistical probability that the
correlation matrix has significant correlations among some of its components. The results were
significant, x2(n = 215) = 2013.292 (p < 0.001), which indicates its suitability for factor analysis.
The Kaiser–Meyer–Olkin measure of sampling adequacy (MSA), which indicates the
appropriateness of the data for factor analysis, was 0.931. In this regard, data with MSA values
above 0.800 are considered appropriate for factor analysis. Finally, the factor solution derived from
this analysis yielded four factors for the scale, which accounted for 57.753 per cent of the variation
in the data.
STEP 7: INTERPRETATION AND
REPORTING
▪ Nonetheless, in this initial EFA, two items (i.e. “RDR1: The university is involved in funding
‘relevant’ research.”, “PR1: The university is performing in a manner consistent with the
philanthropic and charitable expectations of society.”) failed to load on any dimension
significantly. “RDR2: Students are educated regarding their social responsibility in their area of
specialization.” loaded onto a factor other than its underlying factor. Hence, the three items were
removed from further analysis.
▪ The authors repeated the EFA without including these items. The results of this new analysis
confirmed the five-dimensional structure theoretically defined in the research (see Table). The
Kaiser–Meyer–Olkin MSA was 0.917. The three dimensions explained a total of 60.798 per cent of
the variance among the items in the study. The Bartlett’s Test of sphericity proved to be significant
and all communalities were over the required value of 0.500. The four factors identified as part of
this EFA aligned with the theoretical proposition in this research. Factor 1 includes items ER1 to
ER7, referring to Ethical Responsibilities (ER). Factor 2 gathers items RDR2 to RDR6, which
represents Research and Development Responsibilities (RDR). Finally, Factor 3 includes items
PR2 to PR6, referring to Philanthropic Responsibilities (PR). Factor Loadings are presented in
table.