ABSTRACT
This chapter discusses the theoretical framework that determines a sense of structure that guides the current study. It outlines the principles of agency and signalling theories, reviews their origins and discusses the relevance of the theories in the current study. The agency theory provides a theoretical framework that helps to explain the impact of stock buyback programmes (SBPs) on the equity incentives plans for employees and firm value. The signalling theory provides a theoretical framework to investigate how the Australian share market reacts to incentives-induced buybacks in both short run and long run, and to identify value-creative and value-destructive SBPs that potentially increase or erode shareholder value. The chapter develops a theoretical model which provides the theoretical analysis and the background that support the current empirical investigation and offers the reader a justification that rationalises the paradox of popularity of SBPs in a market environment characterised by reasonably high share prices.
