33

This study investigates the measurement and recognition of environmental provisions by industrial corporations. It is argued that executives set such provisions to : 1) smooth out volatility in reported earnings, 2) minimize debt and failure contractual costs, 3) manage a firm’s political visibility (media exposure). The sample comprises Canadian firms from the forest products, mining and metals and petroleum products industries with data covering the 1990-1996 period. Our main findings are the following. First, environmental provisions are used to smooth out fluctuations in reported earnings. Second, politically sensitive firms tend to report higher environmental provisions than other firms. However, debt and failure contractual costs do not seem to affect the measurement of environmental provisions. However, environmental provisions are useful for stock market valuation. These findings have implications for other countries that are considering the adoption of such provisions.