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st: How to beat the Sargan test? (gmm for dummies)


From   db10 <petterting@mac.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: How to beat the Sargan test? (gmm for dummies)
Date   Wed, 21 Mar 2012 10:52:27 -0700 (PDT)

Hi. 

In my masters thesis I need to do some estimations for the effect different
determinants have on capital structure. The problem is that my knowledge for
GMM estimation is scarce. 

I have managed to construct a model, with xtabond and xtdpdsys, which gives
me significant results for capital structure that is supported by earlier
empirical findings. The problem is that when I preform Sargan test of
overidentifying restrictions the H0 for overidentifying restrictions are
valid is confirmed.

I don’t understand how to implement endogenous variables and instrumental
variables. How to decide what variables are endogenous, exogenous and
instrumental is also a mystery to me. Hope somebody can help me with some
celerity.

Depandant variable: nclta= none current libilities to total assest 
Explanatory variables: ebitta=profitability, lnoper=size, tfixta=collateral,
growth= growth 

My model is:

. xtdpdsys nclta ebitta lnoper tfixta growth, lags(1) twostep artests(2) 

System dynamic panel-data estimation         Number of obs         =     
1902
Group variable: company                      Number of groups      =      
480
Time variable: year
                                             Obs per group:    min =        
3
                                                               avg =   
3.9625
                                                               max =        
4

Number of instruments =     14               Wald chi2(5)          =  
5263.26
                                             Prob > chi2           =   
0.0000
Two-step results
------------------------------------------------------------------------------
       nclta |      Coef.   Std. Err.      z    P>|z|     [95% Conf.
Interval]
-------------+----------------------------------------------------------------
       nclta |
         L1. |   .6037445   .0644683     9.36   0.000      .477389   
.7301001
             |
      ebitta |  -.1904182   .0056967   -33.43   0.000    -.2015836  
-.1792528
      lnoper |   .0542803   .0154855     3.51   0.000     .0239293   
.0846312
      tfixta |   .2824556   .0701347     4.03   0.000      .144994   
.4199171
      growth |   .0004994   .0003116     1.60   0.109    -.0001113   
.0011102
       _cons |   -.476992   .1435811    -3.32   0.001    -.7584057  
-.1955783
------------------------------------------------------------------------------
Warning: gmm two-step standard errors are biased; robust standard 
         errors are recommended.
Instruments for differenced equation
        GMM-type: L(2/.).nclta
        Standard: D.ebitta D.lnoper D.tfixta D.growth
Instruments for level equation
        GMM-type: LD.nclta
        Standard: _cons

. 
. *AUTOCORRELASJON TEST
. estat abond

Arellano-Bond test for zero autocorrelation in first-differenced errors
  +-----------------------+
  |Order |  z     Prob > z|
  |------+----------------|
  |   1  |  -5.82  0.0000 |
  |   2  |-.49855  0.6181 |
  +-----------------------+
   H0: no autocorrelation 

. 
. *SARGAN TEST
. estat sargan
Sargan test of overidentifying restrictions
        H0: overidentifying restrictions are valid

        chi2(8)      =  26.56045
        Prob > chi2  =    0.0008


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