st: xtabond2 - Sargan test and reducing instruments

[Christian Schroetel <christian.schroetel@googlemail.com>]

Dear Statalist users,

I'm trying to use the system GMM estimation on my panel data with firm
growth as the dependent variable and 13 explanatory variables. One of
the explanatory variables is the lagged dependent variable, so I tried
the Arellano-Bond, respectively the augmented versions.
I've read the help for xtabond, xtdpdsys and xtabond2 and the paper of
Roodman but I still don't completely get how that thing is working, in
particular how the number of instruments are created. I actually
really only want the t-1 lagged dependent variable plus the 12 other
explanatory variables, so I tried the following with xtdpdsys (I made
it to transform that into xtabond2 as well getting the same number of
instruments, but the command would be too long):
- xtdpdsys sgrowth l.slnsales slnage sinternationalsales sleverage
srdintensity spersonalpremium sintangibles stobinsq sclr sroa
scurrentratio scashflowsales, maxldep(1) artests(2) -

That creates me 49 instruments at about 3k observations and I get the
following sargan test:
Sargan test of overidentifying restrictions
        H0: overidentifying restrictions are valid

        chi2(35)     =  990.1915
        Prob > chi2  =    0.0000

First of all: Why so many instruments? I know those are mostly coming
from the dep. variable, because for each indep. variable I remove I
get one istrument less, so it's like 35 instruments only from the dep.
variable, why is that?

Second: What could be reasons the Sargan test statistics is so "bad".
I've seen other with only a bit less instruments but far less
observations getting far better Sargan tests. What could I do to solve
the problem of overidentifying restrictions? May it just be my
explanatory variables are bad?

Any help would be appreciated, I'm quite near desperation on that.

Thanks in advance.

Christian
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