What is a potential reason for certain industries having a lower debt-equity ratio?

A lower debt-equity ratio in certain industries can often be attributed to less predictable future earnings. Industries characterized by volatility and uncertainty typically face challenges in forecasting revenue and profits. As a result, firms in such sectors tend to be more conservative in their approach to leverage, opting to use less debt to finance their operations. This caution arises from the perceived risk of taking on debt when earnings may fluctuate significantly.

In contrast, industries with more stable and predictable earnings may be more comfortable utilizing debt since steady cash flows can support regular interest payments, leading to a higher debt-equity ratio. Thus, firms facing uncertain earnings are likely to favor equity over debt to protect themselves from the risk of financial distress, contributing to a lower debt-equity ratio.