5/ The takeaway: Reorganization not only benefits creditors but can also support greener business practices. Our findings suggest that bankruptcy proceedings could improve environmental performance, especially for "brown" companies.

4/ How does reorganization support emissions reduction? We identify debt relief as a major mechanism. Reorganized firms often see reduced debt, allowing them to invest in sustainable practices.

3/ Third finding: To address causality, we used random judge assignments in bankruptcy cases. Judges with a "pro-continuation" bias tend to steer cases toward reorganization, resulting in lower emissions post-bankruptcy (compared to liquidated firms).

2/ First finding: Brown companies are more likely to experience financial distress and file for bankruptcy.
Second finding: Brown companies are more inclined to opt for reorganization (Chapter 11) over liquidation (Chapter 7), facing lower costs and shorter proceedings.

1/ Our paper examines how climate risks affect the likelihood of corporate bankruptcy and explores the environmental impact of different bankruptcy processes. We analyzed data from 2000-2023, focusing on "brown" vs. "green" firms based on their business description.