Valuing Growth Strategy Management by Hotel Chains Based on the Real Options Approach

Abstract

This paper proposes a method for valuing growth strategies by hotel chains, especially when the investment project involves a high degree of uncertainty. To do this, first the opportunity risks that are inherent in this type of investment project have to be defined and the shadow options ascertained. The second step is to describe the strategies available to hotel chains and the combinations of real options they have implemented. The third step is to propose an investment strategy valuation method that will enable the selection of a strategy that maximizes the value of the company. The most important contribution of this paper is that it highlights the problem that failure to recognize the real options inherent in hotel investment strategies where uncertainty is involved will lead to undervaluation, while the recognition of options that are not key factors (over-recognition) can be misleading. This emphasizes the importance of recognizing only options that are key to the investment project.