By proposing a novel continuous and time-varying measure of Sharia compliance, we investigate whether it enhances the effects of corporate social responsibility, proxied by Environmental-Social-Governance scores, on firms' equity costs and market risks in emerging countries. We construct a large dataset of non-financial listed firms incorporated in eighteen emerging markets, both Sharia-compliant and conventional (4612 firm-year observations from 2002 to 2018), finding a consistent, statistically significant, and negative association between the interaction of ESG scores and the Sharia sensitivity with the cost of equity. Moreover, we reveal that this negative relationship is mediated by firms' market risk (risk channel).
