On the Nonlinear Relationship between Bank Financing and Firm Performance: A PSTR Model for Tunisian Companies

Abstract

Despite that bank lending and firm performance relationship has been strongly explored, to date there are few studies that investigated the threshold of credit that affects firm performance. The aim of this paper is twofold. First, it seeks the optimal threshold of short-term and long-term credits that affects firm performance. Second, it investigates the impact of bank credit of firm performance. To achieve these goals, we used a sample of 36 Tunisian listed companies over the period 2008-2015 and we performed the Panel Smooth Transition Regression (PSTR) as econometric approach. Empirical results indicate that Tunisian firms require more short-term credits than long-term loans based on the optimal threshold. With regard to the impact of bank credit, findings indicate that this effect differs from short-term to long-term credit. We found that firm performance was significantly and positively correlated with short-term credit. However, long-term credit decreases significantly the performance of Tunisian companies. For macroeconomic factors, results show that GDPG increases significantly firm performance; however inflation acts negatively and significantly.