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In this paper, we attempt to explain that expanding current account deficit of Turkey can be a highlighting signal of its dependency on foreign capital inflows. When private non-financial firms borrow in foreign currency, they face currency mismatch in their balance sheets. Statistical analyses of aggregated balance sheet data of non-financial sector revealed that the negative gap between firms' dollarized assets and liabilities has been increasing considerably in Turkey. This creates financial exposure by private non-financial sector. Given a high level of liability dollarization by firms in Turkish economy, it is exposed dramatically to the changes in external and domestic conditions.

Using a novel Economic Policy Uncertainty (EPU) firm‐level political risk index as a measurement for political risk corporations face, we examine the impact of firm‐level political risk on the cost of equity capital (COE) and dividend payouts policy of firms. The paper aims to shed light on adaptation implications of Shari’ah compliance (SC) on firms exposed to firm‐level political risk. We analyse if adoption of Shari’ah compliance requirements (SCR) mitigates firm‐level political risk and impacts the cost of equity and dividend policy. Our benchmark results show that a 1 percent increase in exposure to political risk contributes to a rise in the COE by 0.1 percent and in dividend payout by 5 percent. We find that SC eventually leads to a fall in the COE and in dividend payouts, despite exposure of the firm to political risk. Our findings have important policy implications that are relevant to Shari’ah‐compliant equities and beyond.