Caterpillar Inc.’s CEO, Jim Owen, noted, “Sitting on a big wad of cash doesn’t make any sense whatsoever for shareholders [because] it tends to promote bad practice among management.

. . . You’ve got more [cash] than you know what to do with, and you think you’re so damned good you can buy anything and make it better” [Brat and Gruley, 2007]. If this view is correct, what does it imply about the efficiency consequences of the corporate tax treatment of dividends versus retained earnings?