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This study investigates the extent of hedging in a sample of lodging firms over a five-year period from 2000–2004. The findings document that lodging firms predominantly use interest rate swaps and options to manage interest rate risk exposure. Lodging firms primarily use these instruments as cash flow hedges of their long-term debt liability. The findings indicate that the hedging decision should be modeled separately using a two-step model. The results are robust to alternative specifications and provide evidence to show financial leverage, floating rate debt, information asymmetry, firm size, cash flow volatility and diversification, to be significantly related to the amount of hedging.