An Application of Rank 'lkansformation: Merger Target Predictions

This study attempts to predict merger targets among banks, and also investigates the predictive power rank transformation adds to the prediction models. Rank transformation has been suggested as a robust and powerful tool for financial problems. Multiple discriminant analysis (MDA) and logistic regression have been applied to selected ranked and unranked financial ratios. Then, the classification results of MDA and logistic regression on both ranked and unranked data sets are compared. The results have indicated that rank transformation does improve the predictive power of MDA and logistic regression.