A re-examination of socially oriented responsibility and the cost of equity: evidence from an inflationary economy

Purpose This study aims to investigate the impact of socially oriented responsibility (SOR) (i.e. social, environmental, ethical and governance) on the cost of equity in the firms listed on the Tehran Stock Exchange. Design/methodology/approach The industry-adjusted earnings price ratio (IndEP) was used to evaluate the cost of equity. The cost of equity is calculated for those industries that, except firm i (with a positive profitability), have at least five other firms with a positive profitability in the industry. Hence, 79 firms were selected among seven industries from 2012 to 2022 for hypothesis testing. Gordon’s growth model was used to evaluate the cost of equity and assess the robustness of the findings. The information about 183 companies was retrieved for analysis based on Gordon’s growth model. Findings The results showed that SOR positively affects firms’ cost of equity. Besides, testing the details also showed that social practices (SO), environmental practices (EN), governance practices (GO) and ethical practices (ET) have a positive impact on the cost of equity. The robustness of results supported the main inferences. Originality/value Iran’s economic environment and capital market have been open to discussion within the global community. It is important to note that the relationship between SOR and the cost of equity in developed markets cannot be easily applied to developing Asian markets. Therefore, the present findings, along with the challenges faced in a developing Islamic economy, can contribute to informed decision-making on a global scale.