The core characteristic of a mediating effect (i.e. indirect effect or mediation) is that it involves a third variable that plays an intermediate role in the relationship between the independent and dependent variables.
Technically speaking, the effect of the independent variable X on the dependent variable Y is mediated by a third variable, M, called the mediating variable or mediator (see Figure Above).
Figure (a) shows the total effect c of the causal relationship between variables X and Y, and Figure (b) shows a mediated effect in which X exerts an indirect effect a × b through M on Y.
Thus, when we formulate mediation hypotheses, we focus on how an independent variable (X) affects a dependent variable (Y) by an intervening variable (M) (Baron and Kenny, 1986).
Scholars have followed a procedure similar to that proposed by Baron and Kenny (1986) for multiple regression analysis.
Preacher and Hayes (2008) summarized this approach as follows:
Variable M has a mediating effect
If X has a significant impact on Y
If X has a significant impact on M,
M significantly accounts for variability in Y, and
The effect of X on Y decreases substantially when M is entered simultaneously with X as a predictor of Y.”
However, in recent years, Baron and Kenny’s (1986) causal-step approach for determining mediating effects has been challenged considerably. For example, it is argued that Baron and Kenny’s (1986) first condition, that X needs to show a significant effect (c) on Y in the first step means an effect c should exist at all.
Initially, it seems unnecessary to further investigate whether there is a mediated effect if there is no effect c; however, this argument holds only when complementary mediation occurs in a research model (Zhao et al., 2010), which is the case only when path c has the same effect direction (i.e. positive or negative) as that of the indirect path a ×b.
In the case of competitive mediation, where the effect of the indirect path a ×b differs from that of path c, this requirement no longer holds. In complex SEMs, this can become critical because different types of mediation can occur in the same model at once. In such a case, it is possible that the direct effect c is not significant even if mediation exists and is therefore misleading as a precondition for mediation analysis.
Based on these shortcomings and the growing array of alternative approaches, state-of-the-art guidelines have to consider the following points for testing mediating effects in PLS (Preacher and Hayes, 2008; Shrout and Bolger, 2002; Zhao et al., 2010):
First, testing the indirect effect a × b provides researchers with all information for testing mediation.
Second, the strength of the indirect effect a × b should determine the size of the mediation.
Third, a bootstrap test should be used to test the significance of the indirect effect a × b.