Hello Dear Stata Forum Users,

I have a panel dataset (14,545 observations) and been using Arellano-Bover/Blundell-Bond estimation with xtdpdsys. I do have a problem with Sargan test result and would like to have your opinion on it.

Here are my codes;
Code:
xtset id year
qui xtdpdsys y, lags(1) twostep
estat sargan
Sargan Test Results
Code:
Sargan test of overidentifying restrictions
        H0: overidentifying restrictions are valid

        chi2(8)      =  9.864916
        Prob > chi2  =    0.2746
As it is shown here, we are not able to reject the H0.

However, for some reason, I delete just one observation (the highest value of y) of 14,545 and estimate the model again;
Code:
sort y
drop in 14545
xtset id year
qui xtdpdsys y, lags(1) twostep
estat sargan
Sargan Test Results
Code:
Sargan test of overidentifying restrictions
        H0: overidentifying restrictions are valid

        chi2(8)      =  15.85598
        Prob > chi2  =    0.0445
Right now, our Sargan test value significantly decreases. Shortly, I am wondering why the sargan test is too sensitive (I mean I just drop one observation and the test result becomes stastistically significant?)

Thank you so much in advance.

P.S. Here is the link of the example dataset;
http://www.alperdemirdogen.com/sargan-test-example.dta