Firms obtain improved access to credit supply after their debt is referenced by credit default swaps (CDS). However, CDS-referenced firms also face tougher creditors and greater refinancing risk. In this context, we examine how firms manage their liquidity in response to the introduction of CDS trading on their debt. We find that firms hold significantly more cash after the inception of CDS trading. This finding is robust to the endogeneity of CDS trading, using instrumental variables and propensity score matching. The increase in cash holding by CDS firms is more pronounced for firms with lines of credit, suggesting that banks with CDS protection impose greater discipline on firms, causing them to take a more conservative risk management approach.