What is a characteristic of firms in industries with less predictable future earnings?

Firms operating in industries with less predictable future earnings generally use less financial leverage. This is because high levels of debt can amplify financial risk, particularly when earnings are uncertain and potentially volatile. When revenues fluctuate, firms with a significant amount of financial leverage face greater challenges in meeting their debt obligations, which can lead to financial distress.

By relying more on equity financing, these firms can maintain flexibility to navigate uncertain conditions without the burden of fixed debt repayments. Investors may also be more cautious in lending to firms with unpredictable earnings, leading to a natural tendency for such firms to limit their use of debt. Therefore, the characteristic of using less financial leverage aligns with the need to mitigate risk in volatile earnings environments.