Financial Constraints,Refinancing Risk And Cashholdings

Reasonable cash holding of the company is an important issue in theory and practice of financial management.It not only can make firms carry out daily transactions and operating activities smoothly,but also can ensure the timely repayment of debt to cope with the financial risk and guarantee the company a good business reputation.Although the preference of high cash holdings and short-term debt financing have changed gradually for listed companies in China since split-share structure reform in 2006,but short-term debt in their debt structure is still high.Firms that have more short-term debt tend to have more risks.When refinancing,firms face the risk that changes in market conditions or capital market imperfections could result in refinancing at a significantly higher interest rate.Firms also face the risk that lenders could underestimate the continuation value of the firm and not allow refinancing to take place,leading to an inefficient liquidation of the firm or the sale of important firm assets at fire-sale prices.The development of our country's capital market is not perfect,the problems of information asymmetry and agency cost are more outstanding,compared with the western developed countries.Thus,listed companies in China are generally facing the problems of financial constraints.In order to study the companies' behavior of cash holdings which has more refinancing risk and financing constraints and cash-refinancing risk sensitivities,the paper selects the listed companies in Shanghai and Shenzhen A-share 2007 to 2016 as the research object.This paper establishes the multiple regression models to verify the companies' behavior of cash holdings which has more short-term debt in debt structure.What's more,this paper chooses company size and ownership structure to measure the level of financial constraints.After the establishment of multiple regression models,this paper verifies the difference in cash holdings for coping with refinancing risk between financial constrained firms and non-financial constrained firms.The empirical results show that the more short-term debt in a corporate's debt structure,the higher risk of refinancing and the greater company's cash holdings.For financial constrained firms,the impact of refinancing risk on cash holding of the company is significantly greater than that of non-financial constrained firms.According to the results above,we put forward some proposals to the company's management and governance,listed companies and the government.First,the company's management and governance should fully consider the company's objective status and development prospects when draw up the cash holding policy.Second,the government should vigorously develop the bond market in order to broaden the channels for the debt financing of the company,and then change the current situation of debt financing based on bank loans to reduce the short-term debt in the debt structure of listed companies in China.Finally,the company should actively improve the operating and financial position and strengthen information disclosure to reduce the degree of information asymmetry with banks or other financial institutions,thereby reducing the cost of external financing and easing financing constraints.