Dear Prof. Bido,
I am a PhD student and a fresh SMARTPLS user, working in the field of construction management research. I am currently facing some problems in developing a formula to calculate an index that represents the financial health of a company. Would appreciate if you could kindly enlighten me on the following issues:
1. In the process of developing a formula to calculate an index that represents a firms' financial health, do I need to use formative epistemic relationship among indicators of respective constructs? Or may I achieve my objective by using the reflective mode?
2. If in any case, I need to use formative indicators to develop the formula. What are the steps required to test for the reliability and validity of constructs?
3. In the case of reflective epistemic relationship, can I assume that the factor loading of individual indicators behaves similarly as a regression coefficient? I am confused because there are some conflicts among some reference books on SEM.
I look forwards to receive your advice. Many thanks in advance.
Best regards,
Ben