The investment behavior of lodging firms is not adequately explained by conventional investment models due to the lodging firms’ practice of acquiring some properties while disposing of others. This practice makes it difficult to apply decision models based on marginal productivity and the costs of fixed assets to lodging firms. Using data on U.S. lodging firms between 2000 and 2008, this study provides an alternative explanation of hotel firms’ simultaneous investment and disinvestment behavior. Taking the view that hotel properties are analogs to financial assets (given that a hotel investment has bond-like characteristics), the study applied the financial portfolio theory to develop a theoretical framework that would explain how lodging firms can understand their investment options as components of a portfolio of assets. Through empirical testing, the study also found significant investment–disinvestment interdependency for lodging firms, which supports the alternative theory to asset management. An important consideration in lodging companies’ investment decisions is residual fees from franchise or management agreements that are attached to assets even after they are sold.
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