While previous studies show that manipulating earnings upward by firms can adversely affect their peers’ investment decisions, leading to overinvestment by peer firms during misstatement periods, I investigate how peer firms’ financial information characteristics affect this overinvestment. I propose that peers’ accounting conservatism is negatively associated with their overinvestment during the misstatement periods, based on the governance role of conservatism in monitoring of managers’ investment decisions. I also predict that firms with high-quality internal information suffer less from the overinvestment problem, as they place less weight on external sources of information including the financial reports of their competitors. Using a sample of firms subject to SEC enforcement actions for accounting misstatements as my misstating-firm sample, I find that peer firms’ accounting conservatism has a negative effect on their overinvestment during misstatement years. This evidence is consistent with the notion that monitoring bodies rely on conservatism as a control mechanism to discipline managers. I also provide some evidence that internal information quality is negatively related to overinvestment during misstatement years. My results show that firms with more effective internal controls, that can generate more accurate and timelier information for their managers, are less adversely affected by their rivals’ misreporting. However, my results about filing speed, as an indicator of internal information quality, do not support my second prediction regarding the effect of internal information quality on overinvestment.