This dissertation contains two separate essays on the implications of the complex financial reporting rules of stock option compensation outlined under ASC 718. The first essay examines the effect of the tax benefit from employees' exercise of stock options on the cash effective tax rate. While not explicitly stated, many tax avoidance studies implicitly want to investigate tax avoidance that is the result of firms' intentional choices. Although stock option exercise reduces firms' tax burden, the firm does not control the timing of option exercise and the accompanying tax benefit. When the realized tax benefit deviates from the firm's expected cost, stock option exercise results in unanticipated changes in the cash taxes paid. The cash effective tax rate (CASHETR), a common measure of tax avoidance, reflects both the anticipated and unanticipated cash tax savings from employees' exercise of stock options. CASHETR's inclusion of unanticipated cash tax savings mismeasures intentional tax avoidance. Using both parametric and non-parametric analysis I show that the unanticipated tax benefit from employees' stock option exercise can cause firms to be identified as more aggressive tax avoiders. I also show that, among other differences, firms with greater unanticipated tax benefits from employees' exercise of stock options are more profitable, are less levered, have more extensive R&D, and have larger market-to-book ratios. Because these firm characteristics are often used as controls in studies of tax avoidance, the relationship between them and CASHETR's mismeasurement of intentional tax avoidance creates an endogeneity problem for researchers and could lead to incorrect inferences. I use a research simulation to inform researchers of an implication of this endogeneity concern when CASHETR is used to measure firms' intentional tax avoidance. I construct a hypothetical firm characteristic that is correlated to varying degrees with stock growth. This hypothetical firm characteristic represents a number of firm operating characteristics that could be variables of interest in studies of tax avoidance. Using a common model of tax avoidance, I test the null hypothesis that this hypothetical firm characteristic is not a determinant of tax avoidance. I show CASHETR's inclusion of the unanticipated tax benefits from employees' exercise of stock options leads to inflated rejection rates of the null hypothesis and can change inferences about determinants of intentional tax avoidance. Tax avoidance researchers can avoid the problems caused by the unanticipated tax benefit from stock options in two ways. First, they can use the effective tax rate for financial reporting purposes (GAAPETR). Because the financial reporting rules prohibit firms from including the unanticipated tax benefit from stock options in the calculation of the firm's tax expense, the unanticipated tax benefit from stock options does not affect GAAPETR. Second, researchers can use the excess tax benefit from the exercise of stock options disclosed by firms to adjust CASHETR to remove these unanticipated cash tax savings (CASHETRWITHOUT). The second essay in this dissertation examines the difference between firms' recognized and realized costs from stock option compensation. Under ASC 718 a firm recognizes the estimated value of stock options at their grant date as an expense for financial reporting purposes. This estimate often differs from the realized cost of the stock options, which consists of the cash proceeds forgone because the stock is issued to an option holder at a below-market exercise price. When ASC 718 was implemented, critics contended that these reporting rules allowed firms to avoid recognizing the full amount of wealth transferred from shareholders to employees. Consistent with this concern, I find that the realized cost of stock options exceeds the recognized cost of options for the median firm in my sample by $0.99 million, or 1.46 percent of pretax book income, in each year of my sample period. This translates into a wealth transfer from shareholders to employees in each year of my sample period of three cents per share in excess of recognized costs for the median firm. I also find that the realized cost from stock option compensation exceeds the recognized cost by $7.8 million, or 4.96 percent of pretax book income, in each year of my sample period for twenty-five percent of firms. The shareholders of these firms are transferring to employees 11.58 cents per share in excess of the recognized cost of stock options in each year of the sample period. Overall, these results suggest that firms using stock option compensation generally avoid recognizing the full realized cost of stock options.