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One of the important characteristics of the hotel business is uncertainty of lodging demand, which can jeopardize hotel operation and ultimately even threaten a hotel’s survival during an economic recession. The purpose of this paper is to propose an approach to determine optimal hotel investment issues under uncertain lodging demand.

Uncertainty of lodging demand is classified into two types: the impact of unexpected economic recession and the temporary imbalance between supply of hotel rooms and lodging demand. A jump-diffusion real option approach is proposed to analyze how these two types affect optimal investment timing and the potential value of new hotel projects. The case of hotel investment in Macao is used to illustrate the jump-diffusion real option approach.

The results of numerical analysis show that the uncertainty induced by temporary imbalance between supply of hotel rooms and lodging demand increases the threshold of investment and hotel value, while the uncertainty induced by unexpected economic recession has ambiguous effects on the value and optimal investment timing of new hotel projects.

The jump-diffusion real option approach increases managerial flexibility for managers when making investment decisions on new hotel projects, allowing greater value to be generated than is possible with the conventional discounted cash flow method.

The approach separates the impact of unexpected economic recession on lodging demand from that of “normal” fluctuations in lodging demand, and it considers the impact of both types of uncertainty on hotel investment.

The purpose of this paper is to investigate the effect of financial constraints on innovation in developing countries. It also examines how the effect of financial constraints varies by sector and with main firm characteristics such as size and age.

The study utilizes matched firm-level data from two sources; the World Bank Enterprise Survey and the Innovation Follow-Up Survey. From 11 African countries, 4,720 firms have been included in the sample. A recursive bivariate probit model is used.

The result shows that financial constraints adversely affect a firm’s decision to engage in innovative activities and the likelihood to have product innovation and process innovation. The results point out that the extent of the adverse effect of financial constraints on innovation differs across the sectors, firm size and age groups. A firm’s innovation is also explained by firm size, R&D, cooperation/alliance, the human capital of the firm, staff training, public financial support and export. At last, the probability of encountering financial constraints is explained by firms’ ex ante financing structure, amount of collateral, accounting and auditing practices and group membership.

Managers should strengthen the internal and external financing capacity to reduce financing constraints and their adverse effect on innovation.

A pending policy task for African leaders is to design and evaluate reforms that reduce the adverse effects of financial constraints on innovation.

This study contributes to the existing literature on financing of innovation by examining how and to what extent financial constraints affect innovation across various sectors, size and age groups.