Refinancing risk and cash holdings

Jarrad Harford, Sandy Klasa, William F. Maxwell

Research output: Contribution to journalArticlepeer-review

245 Scopus citations


We find that firms mitigate refinancing risk by increasing their cash holdings and saving cash from cash flows. The maturity of firms' long-term debt has shortened markedly, and this shortening explains a large fraction of the increase in cash holdings over time. Consistent with the inference that cash reserves are particularly valuable for firms with refinancing risk, we document that the value of these reserves is higher for such firms and that they mitigate underinvestment problems. Our findings imply that refinancing risk is a key determinant of cash holdings and highlight the interdependence of a firm's financial policy decisions.

Original languageEnglish (US)
Pages (from-to)975-1012
Number of pages38
JournalJournal of Finance
Issue number3
StatePublished - Jun 2014

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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