Hi,

I think I have a foundamental problem in understanding the factor analysis. I want to do a regression analysis looking into the relationship between Company X financial indicators and their Investment behaviour for the last 10 years. Since I have a lot of financial ratios, I would like to group them. For example ROE, ROI, ROS, Profit Margin all belong to the construct "Profitability". For the construct "Investment", the dependent variable, I would like to group capital expenditure, R&D investment and Investment capital cash flow. The goal should be to find out what influences the Investment the most and how is it being influenced.

In order to group, I would like to use factor analysis in SPSS and only choose the variables I think belong together and create a new variable (construct). Then I would look at the KMO & Bartlett Test in order to judge the quality of the constructs. If it's qualitative enough, l want to do a corelation analysis afterwards and then the multiple Regression.

Unfortunately, the more I read about factor analysis, the more confused I get. As far as I understand, there is Explorative Factor Analysis and Confirmative Factor Analysis. SPSS can only do EFA. But EFA is being used to find hidden relationship between the variables without having prior ideas or knowledge about these hidden relationships. CFA is being used to create a construct beforehand and then examine whether the data fit the construct. Is this right so far?

It seems there is also a practical difference in doing both, since SPSS can only do EFA. So is it possible to do what I want, using EFA to group the financial indicators and manually choose which of the variables I put together or do I HAVE to do the EFA with all variables.

Thanks in advance!

BR

I think I have a foundamental problem in understanding the factor analysis. I want to do a regression analysis looking into the relationship between Company X financial indicators and their Investment behaviour for the last 10 years. Since I have a lot of financial ratios, I would like to group them. For example ROE, ROI, ROS, Profit Margin all belong to the construct "Profitability". For the construct "Investment", the dependent variable, I would like to group capital expenditure, R&D investment and Investment capital cash flow. The goal should be to find out what influences the Investment the most and how is it being influenced.

In order to group, I would like to use factor analysis in SPSS and only choose the variables I think belong together and create a new variable (construct). Then I would look at the KMO & Bartlett Test in order to judge the quality of the constructs. If it's qualitative enough, l want to do a corelation analysis afterwards and then the multiple Regression.

Unfortunately, the more I read about factor analysis, the more confused I get. As far as I understand, there is Explorative Factor Analysis and Confirmative Factor Analysis. SPSS can only do EFA. But EFA is being used to find hidden relationship between the variables without having prior ideas or knowledge about these hidden relationships. CFA is being used to create a construct beforehand and then examine whether the data fit the construct. Is this right so far?

It seems there is also a practical difference in doing both, since SPSS can only do EFA. So is it possible to do what I want, using EFA to group the financial indicators and manually choose which of the variables I put together or do I HAVE to do the EFA with all variables.

Thanks in advance!

BR

Last edited: