Are mandatory environmental provisions reliable? The case of the French listed companies

This paper explores if, and why, mandatory environmental liabilities recognized by the French listed companies could be considered as reliable, or are mainly used to manage earnings. The early study of Berthelot et al. (2003), based on a positive accounting theory framework, shows that Canadian listed companies from environmental sensitive industries used their environmental provisions to smooth their earnings and to avoid political costs in the early 1990's. Through both quantitative and qualitative research methods and the use of the alternative theoretical framework of the legitimacy, I find a different conclusion in the study of environmental provisions of the French listed companies from 2005 to 2010. The quantitative analysis reveals that environmental provisions are not used to smooth earnings or to avoid political costs whereas they tend to be used to increase environmental legitimacy. These quantitative results are reinforced and explained by the qualitative part of the research where the decision process which leads to this environmental provisions recognition is described. Indeed, it could be analyzed as a bottom-to-top, highly technical and standardized process that gives finally little flexibility to actors of the top management to manage earnings.