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We study how parent liability for subsidiaries' environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a difference-indifferences framework, we find that stronger liability protection for parents leads to a 5% to 9% increase in toxic emissions by subsidiaries. Evidence suggests the increase in pollution is driven by lower investment in abatement technologies rather than increased production. Cross-sectional tests suggest convexities associated with insolvency and executive compensation drive heterogeneous effects. Overall, our findings highlight the moral hazard problem associated with limited liability. * Pat Akey is at University of Toronto. Ian Appel is at Boston College. We thank Amit Seru (the Editor), an anonymous Associate Editor, and two anonymous referees for valuable comments that improved the paper. We also thank Vineet Bhagwat; Thomas Bourveau; Naveen Daniel; Slava Fos; Erik Gilje; Denis Gromb;