Scrum technologies have been applied in business software for two decades and are an important part of organizations' innovation processes. This exploratory study examines whether the use of Scrum within an organization can be detected from its financial statements by reviewing references to scrum in corporate financial reports filed with the US Securities and Exchange Commission (SEC). While scrum use is widespread in software development, there are very few references to scrum in corporate financial reports. Fewer than one-half percent of businesses filing reports with the Securities and Exchange Commission include scrum capabilities in their business strategy or business competency sections. It appears that senior management has not yet recognized the value of the technology and evaluated its impact on investor evaluation of business prospects. Investors need to seek other media to evaluate scrum implementation at the business.
TopBackground
Corporate Financial reports are prepared for two audiences; the regulatory agency which requires a report meeting statutory guidelines with severe penalties for non-compliance, and the market which increasingly uses the electronically filed data for evaluating business operations and profitability. Even in 2000, an analysis of disclosures in electronically (EDGAR) filed reports shows that incremental information useful for investors is found in these reports while the delay in paper filing eliminates any benefits to investors (Qi, Wu, & Haw, 2000). Palmieri, Perrin & Whitehouse (2018) discuss the use of language in financial communication and the AILA network in financial communication research.
Research using financial reporting often uses financial data and accounting ratios as determinants of profitability. For example, Sultan (2014) found that return on equity (ROE) was the best measure of the health of the Bagdad soft-drink industry in the years 2004 to 2013. However, such accounting ratio analysis gives little insight into the innovation processes at work within the organization that have potential for future profitability. Muneer et al. (2017) showed how an organization's financial reporting method can lead to profitability. Such analysis gives some insight into the relationship between the practices of the firm and profitability, however the financial reporting practices of the firm may or may not relate to its use of innovative processes.
During the past two decades the increasing use of automated tools to analyze data, including text data, has resulted in the printed corporate report becoming a quaint anachronism, and rarely read seriously. Investors analyze the data in electronically filed reports. Jarvenpaa & Ives (1990) analyzed 600 letters to shareholders included in corporate reports and used a count of the number of IT phrases as a proxy of the perceived importance of information technology to the business. This type of content analysis has its roots in WWII efforts of military intelligence and is a useful tool for analyzing the prevalence and perceived importance of a new technology (Lacity & Janson, 1994). Abbasi & Chen (2008) document different linguistic features used for text analysis including language and processing features. It has been shown that executives used specific terms to consistently demonstrate a sustained focus on trustworthiness and moving in a specified strategic direction (Crawford, 2011).
The tone employed in earnings press releases is found to influence stock market pricing (Huang, Krishnan, & Lin, 2018). They use word-lists created for 10-K analysis and use a frequency count of net positive words to total words. Note that their study uses press releases rather than 10-K reports filed by the business with the SEC. While press releases are highly relevant for market evaluation of special events, including crises or opportunities, the 10-K reports are more relevant for how the business values the use of specific technologies. Another study by Erickson, Weber and Segovia (2011) uses a critical analysis of the language used by the business to explain weaknesses in its operations with specific reference to Section 404 of Sarbanes-Oxley Act requirements for the reporting of internal control failures. In this study the emphasis is on the language used to report failures.