Journal of Indonesian Economy and Business Volume 38, Number 1, 2023, 62 – 80 ISSN 2085-8272 (print), ISSN 2338-5847 (online) https://journal.ugm.ac.id/v3/jieb THE EFFECT OF TOURNAMENT HORIZON, FAULTLINE AND GROUP PERFORMANCE RELATIONSHIPS UNDER DECENTRALIZED SYSTEM Frida Fanani Rohma 1* , Indah Shofiyah 2 , and Abdus Salam Junaedi 3 1 Department of Accounting, Faculty of Economics and Business, Universitas Trunojoyo Madura, Bangkalan, 69126, Indonesia 2 Department of Accounting, Faculty of Economics and Business, Universitas Ahmad Dahlan, Yogyakarta, 55281, Indonesia 3 Department of Aquatic Resource Management, Faculty of Agriculture, Universitas Trunojoyo Madura, Bangkalan, 69126, Indonesia ABSTRACT ARTICLE INFO Introduction/Main Objectives: This research integrates the self- categorization and contagion theories to analyze faultlines due to a decentralization system. Besides, this research investigates the inducement of tournament incentives as a control mechanism to mitigate the harmful effects of a faultline on group performance. Background Problems: Fiscal decentralization has a crucial role as it stimulates economic growth, enhances the quality of decision-making and escalates performance. However, decentralization by one local government, which consists of various local government departments, may trigger a faultline. This research argues that patterned diversity convenes faultlines that split up a group into antagonistic sub-groups following the attributes affecting the aggregate group performance. Novelty: This research provides a new insight, in that decentralization appears to be a double-edged sword. It can elevate the quality of local decision-making, and trigger faultlines between local government departments at other times, affecting the local government’s aggregate performance. Research Methods: This research uses a laboratory experimental method with a 2×3 between-subjects factorial design. The research design uses the dyad analysis level. Finding/Results: The results found that the induction of a tournament scheme with the use of a cumulative ordinal scale for determining group performance encourages the social cognitive activation of individuals, thus encouraging cognitive orientation to optimize compensation and minimize categorization and antagonism. Conclusion: A tournament incentive scheme can be induced as a management control mechanism and to encourage the sub-groups to be winners. This resolution is expected to mitigate antagonistic behavior due to faultlines and enhance the optimization of aggregate performance Article information: Received 12 May 2022. Received in revised version 22 December 2022. Accepted 23 December 2022 Keywords: decentralization, faultline, performance, self- categorization, tournament JEL Code: C92; M48; M51; O15; P27 * Corresponding Author at Department of Accounting, Faculty of Economics and Business, Universitas Trunojoyo Madura, Bangkalan, 69126, Indonesia. E-mail address: frida.frohma@trunojoyo.ac.id (author#1), indah.shofiyah@act.uad.ac.id (author#2), abdus.salamj@trunojoyo.ac.id (author#3)