This study uses Korean listed firms having both domestic and foreign credit rating and investigates the implication of the credit rating difference by analyzing its relationship to post stock returns. Further, we try to identify its determinants and examine its association with investment inefficiency, leading to low stock returns. Despite the importance of credit rating agencies in capital markets, they have been criticized for low reliable or inflated ratings in Korea. Due to the difficulty in estimating the extent of inflation, this issue is not actively addressed in prior literature. We overcome this limitation by using the credit rating difference between domestic and foreign credit rating agencies and examine what it implies through investors’ response (buy and hold abnormal returns). If the difference between domestic and foreign credit rating reflects inflated ratings, identifying its determinants is also important to information users, which enables them to detect rating inflation in advance. We posit that information environment, firm characteristics, corporate governance, and financing plan affect it. The empirical analyses are based on 158 Korean listed firm-years from 2002 to 2013. We find that the change in the credit rating difference is positively associated with 3-month buy and hold abnormal returns(BHAR3) at the credit rating announcement, but negatively related to second quarter(4th to 6th month) and third quarter(7th to 9th month). This indicates that inflated stock price based on credit rating inflation is revised downward. This could be viewed as evidence of inflated domestic credit rating and it is supported by investment efficiency result. The change in the credit rating difference is positively associated with fourth quarter(10th to 12th month), suggesting the possibility that firms release favorable news to maintain their credit ratings. Further, our results show that better information environment such as low analysts dispersion and the existence of fair disclosure is associated with smaller credit rating difference and domestic credit rating agencies put more emphasis on firm size and profitability. In addition, we find that firms having equity financing plan are related to larger credit rating difference. The findings of this study provide supplementary evidence that credit ratings of domestic agencies in Korea are inflated through the combination of domestic and foreign credit ratings and its impact is not limited to bondholders.