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Re: st: Creating an index

From   Maarten Buis <>
Subject   Re: st: Creating an index
Date   Mon, 14 May 2012 09:30:42 +0200

--- On Sun, May 13, 2012 at 5:30 PM, Ozgur Ozdemir wrote:
> thanks for your quick response. I have already written a chapter on the impact of board structure on firm performance which include board specific data such as board size, number of independent directors etc. In the next chapter, I would like to introduce a variable called "Governance Index" then research association between the governance index and some other firm level characteristics. Therefore, I need a single measure to proxy governance as it will be a dependent variable in chapter 2. therefore, I cannot in chapter 2 argue that I reduced the number of variables and used factor analysis as it will bring suspects about a multicollineratiy problem for Chapter 1 however was not a case at all. So, I need to get this index in a different way.  i found sheafcoef but not sure if it might help.

You seem to treat your audience as the enemy that is trying to bring
you down, so you need to "trick" them by not using factor analysis
even though you want to. It usually works much better to think of your
work as part of a larger literature. Each contribution is there to
make a reasonable argument, which is not perfect but reasonable. The
combined work of all the people in that literature is what will
determine the current conclusion, not a single contribution. That way
your audience consist of your colleagues rather than your enemys and
purpose of your contribution is to communicate your argument as openly
as possible.

The choice between a factor-analysis like solution and a sheaf
coefficient like solution depends on how you think the observed
variable relates to your latent variable (which you call index). If
the latent variable is influencing the observed variables than you
want to use a factor analysis type technique, for example it is likey
that the latent intelligence is influencing the observed answers in an
intelligence test. If the observed variables influence the latent
variable you want to use a sheaf coefficient like technique, for
example we can think of the parents' occupation and education as a set
of resources going into a family pot of resources which we can call
family socioeconomic status.

Hope this helps,

Maarten L. Buis
Institut fuer Soziologie
Universitaet Tuebingen
Wilhelmstrasse 36
72074 Tuebingen

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