I don't think it is a performance parameter. Rather, it prevents many threads from blocking on operations that may not ever complete. If your operations take a long time to complete, then by all means set this to a higher value.
If you have many transactions that block or take a lot of CPU, then performance-wise, you want to control the number of simultaneous thread activity. Either increase if I/O bound, or decrease if CPU bound.
Many thanks for your reply - your explanation is very enlightening and most useful.
On Systems with heavy load this parameter can be a very good performance parameter. We used it for shifting the thrashing-point of the system.
I would only recomend increaing the transaction timeout, if you realy need the time for your transactions. If not you are only delaying your problems and making them even biger, since some resources are now blocked even longer. In our case increasing the value caused the system to be almost unusable under heavy load. decreasing this was a major performance boost.
What did you find your optimum timeout setting has been?