Predicting Restaurant Facility Closures
36 Pages Posted: 18 Jul 2019
Date Written: January 23, 2018
This paper predicts the likelihood that a restaurant will close within the next one to two years using a Yelp restaurant dataset and a high dimensional gradient boosting model called LightGBM (hereafter GBM). This model, trained on more than 20,000 individual restaurants, has an accuracy of 97% and a ROC (AUC) score of 75%. An AUC score above 70% is ordinarily classified as a “fair model” in performance. Using the prediction model, we can also quantify the most predictive variables and higher order variable interaction, both of which produce further compelling insights into non-linear relationships. A model that predicts facility closures has implications for both equity and debt providers. In this paper, I argue that capital providers should make use of publicly available datasets to aid their capital allocation decision making process.
Keywords: Machine Learning, Applied, FirmAI, Restaurant, Bankruptcy, Failure, Closures
JEL Classification: C38, C45, C52, C53, C54
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