The purpose of this study is to examine the relationship between peers’ weak performance and conditional conservatism, with a focus on moderating roles of corporate governance, information asymmetry, and managerial ability. Conditional conservatism refers to the timely recognition of bad news relative to good news in earnings. Based on the peer effect literature, the performance of similar firms within the same industry (peers) can influence the decisions and financial reporting characteristics of the focal firm. Accordingly, weak peer performance is expected to affect firms’ conservative reporting behaviors by increasing investors’ sensitivity to negative news. Weak corporate governance, high information asymmetry, and managerial ability can further shape how managers respond to weak peer performance. The sample consists of 137 firms listed on the Tehran Stock Exchange over the period 2012–2023. The hypotheses were tested using panel data with year fixed effects and GLS estimation. Findings show a significant positive association between peers’ weak performance and conditional conservatism, indicating investors’ sensitivity to timely disclosure of negative news in environments with poorly performing peers. Corporate governance did not significantly moderate this relationship, which may be attributed to ineffective monitoring mechanisms or heterogeneity in corporate governance characteristics across firms. In contrast, information asymmetry strengthens this relationship, such that in more opaque environments, the impact of peers’ weak performance on conservative reporting becomes more pronounced. managerial ability, unexpectedly, strengthens this relationship, possibly because capable managers adopt more conservative behavior to preserve reputation and mitigate litigation risks. Robustness tests of individual corporate governance components confirm the stability of second hypothesis, with the interaction term mostly insignificant, except for government influence and ownership, which alter the relationship’s direction.