This study attempts to examine stock price reaction to subsequent dividend announcements and information efficiency in Sri Lankan Share Market with a sample of 61 major companies from those listed on the Colombo Stock Exchange (CSE), which have made 137 dividend announcements for the period of 1999-2005. This study employs event study methodology. More specifically, it employs the market model in generating abnormal returns surrounding subsequent dividend announcements. Findings show that there is a considerable informational content of dividend announcements in Colombo Stock Exchange. The investors consider dividend announcements as favorable news. The stock price reacts positively to subsequent dividend announcements in Sri Lankan Capital Market. More specifically, dividend increase announcements support the information content of dividend hypothesis. Moreover, dividend decrease announcements and dividend no change announcements against with the information content of dividend hypothesis. In addition, the results in this study supported the semi-strong form of the efficient capital market hypothesis; that is, on the average, the stock market adjusts in an efficient manner to new dividend information. This research will be important to all those takes interest in the share market. Especially, it is more important to the investors, managers of the companies and stock exchange regulatory agencies in their decision-making.