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This study aims to examine the Signaling effect of dividends on the financials and market performance of listed companies in Sri Lanka. This study facilitates information regarding current and future performances, such as dividend practices, future growth projections and insights into market behaviour for stakeholders. The total population was identified as the companies listed in the CSE, which was approximately 316 firms. The sample of the study was 102 companies listed between the years 2015 to 2019. Systematic sampling was used to select the sample. In analysis, panel regression was used as the data analysis technique. STATA version 16 Statistical Software Package was used in conducting the data analysis. Random effect regression model was recommended by the hausman test. The results concluded that dividend decisions were impacted insignificantly on subsequent market performance. Dividend per share was positively and significantly impacted on both return on assets and return on equity. Dividend pay-out ratio was positively and insignificantly impacted on return on equity and also negatively and insignificantly impacted by return on assets. The current study recommends that further research could be done by focusing on dividend announcement dates and calculating the subsequent market performance, three to five months following the dividend announcement date.